Blog
New UK crypto regime takes a step closer
Jill Lorimer
The FCA is conducting a review into whether motor finance customers were overcharged as a result of the widespread use of discretionary commission arrangements in the motor finance industry. It had expected to set out its next steps in light of this review in September 2024. However, it has announced that it will not now do so until May 2025.
The regulator has indicated that it is now “more likely” to introduce a redress scheme than it was when it started its review. It is likely to publish a consultation paper in Spring next year to gauge views on the details of the proposed scheme.
Background
Discretionary commission arrangements (DCAs) allowed motor dealers / brokers wide discretion as to the interest rate, within an accepted range, which would apply to a customer’s motor finance agreement. As the commission earned by the broker was linked to the interest rate charged to the customer, these arrangements may have incentivised brokers to charge customers higher rates of interest.
The FCA banned DCAs on 28 January 2021, following its finding that first, few brokers disclosed to customers the commission they received for arranging the finance and second, lenders were not taking reasonable steps to ensure brokers complied with the FCA’s rules on credit-related activities.
A high volume of complaints relating to DCAs entered into before the ban have been made to firms and continue to be made. The vast majority of these complaints have been rejected by firms. However, a number of these have since been referred to the Financial Ombudsman Service (FOS) and county courts of which some have been upheld.
Barclays’ judicial review
Earlier this year, Barclays applied to commence judicial review proceedings in respect of a decision by the FOS to uphold a particular complaint relating to DCAs.
In that case, a customer, Miss L, made a complaint to the FOS in respect of the commission arrangements that applied to the purchase of a car in November 2018. Barclays had argued that it had complied with the legal and regulatory obligations that applied at the relevant time and that Miss L had not been treated unfairly when all the circumstances of the transaction were taken into account. However, the FOS found that:
- The discretionary commission model created an inherent conflict between the interests of the broker and the interests of Miss L;
- In operating the arrangements with the broker in the way that it did, Barclays acted contrary to FCA Principles and guidance; and
- It was likely that a court would conclude that the relationship between Barclays and Miss L was unfair to her under s.140A of the Consumer Credit Act 1974.
A hearing is expected in Autumn this year. The FCA’s decision to postpone its decision on next steps will allow it to factor in the outcome of this hearing, as well as a number of outstanding Court of Appeal judgments.
What should affected firms do in the meantime?
While a delay had been widely predicted in the market, the ongoing uncertainty will not be welcomed by firms grappling with potentially significant contingent liabilities. The total compensation bill may not now be known until late 2025, with many firms having already made provision in the millions to cover potential redress.
Firms should continue to put existing, and new, complaints on hold pending confirmation of the details of any scheme. The FCA has further extended the deadline for firms to respond to complaints to 4 December 2025 at the earliest. Similarly, the usual deadline for referring a complaint to the FOS is to be extended.
Firms should continue to comply with the specific expectations set out in the FCA’s Dear CEO letter of 12 April 2024 in respect of the adequacy of their financial resources, the accuracy of their financial statements and regulatory reporting and their obligations to make appropriate disclosures to stakeholders.
Given that any redress scheme is likely to include arrangements entered into many years ago – potentially as far back as 2007 - firms likely to be affected should be taking steps to secure historic records in readiness for the implementation of a scheme. If a scheme is implemented, it is likely to be run to a tight timetable and the more preparation that can be done in advance, the better placed firms will be to comply.
Further information
If you have any questions or concerns about the topics raised in this blog, please contact James Alleyne, Jill Lorimer or any member of our Criminal Litigation team.
About the Authors
Jill Lorimer is a partner in Kingsley Napley’s Financial Services Group and has an extensive track record in advising firms and individuals facing regulatory and criminal investigations by the Financial Conduct Authority (FCA).
James Alleyne is Legal Director in the firm’s Financial Services Group. He advises clients on the full spectrum of financial services and FCA-related matters, including on authorisation applications, perimeter and supervisory issues, enforcement investigations and cases before the Regulatory Decisions Committee and Upper Tribunal.
You may also be interested in:
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
You may also be interested in:
Blog
Is the FCA’s name and shame policy now dead in the water?
Jill Lorimer
Blog
Finfluencers – in the FCA’s sights
James Alleyne
Share insightLinkedIn X Facebook Email to a friend Print