Understanding Complaints About Car Finance Commission
The Financial Ombudsman Service (FOS) has been actively addressing complaints related to car finance commission, a growing concern for many consumers. These complaints often stem from a lack of transparency in how commissions are calculated and disclosed, raising questions about fairness and customer understanding.
Latest Updates
On 19 December 2024, the FCA announced temporary rules on motor finance commission to extend how long:
- Firms have to respond to motor finance complaints where a ‘non-discretionary commission arrangement’ was involved.
- Consumers have to refer complaints to the FOS.
This means that the rules for all complaints about motor finance agreements where there were commission arrangements in place are now in line with those announced in January 2024, which covered agreements linked to discretionary commission arrangements.
Ongoing legal action involving commission arrangements in motor finance could also affect the FOS’s work on complaints involving similar issues. The Supreme Court’s findings, which will consider an appeal of the recent judgment in Johnson, Wrench, and Hopcraft set for April 2025, might influence future decisions.
Additionally, on 17 December 2024, the High Court found in FOS’s favour in a review of its decision to uphold a complaint related to a discretionary commission arrangement (DCA) in a motor finance agreement. This judgment is being carefully reviewed to assess its implications for other similar cases.
Types of Complaints
The FOS receives complaints about car finance commission paid by lenders to car dealers acting as credit brokers. These complaints arise from a variety of car finance agreements and commission models. Common issues reported include:
- The car finance agreement was arranged unfairly.
- Commission was not properly disclosed, affecting the interest paid or loan type received.
- Credit brokers or intermediaries did not disclose their commission from lenders.
- The commission model used by the lender was perceived as unfair.
- The broker did not provide impartial advice due to commission arrangements.
- Consumers were not offered the best available interest rate.
Handling a Complaint Like This
When responding to complaints, firms must adhere to the FCA’s temporary complaint-handling rules and provide clear information promptly. Here’s how to manage these complaints effectively:
- Follow Temporary Rules: Ensure you comply with the FCA’s guidance on commission-related complaints and exceptional circumstances involving vulnerable consumers.
- Prompt Responses: Address customer contacts, including inquiries and requests for information, in a timely manner. Provide evidence of commission arrangements and payments to avoid escalation to the FOS.
- Explain Reliance on Rules: If relying on temporary rules and not issuing a final response, clearly inform the customer. Failure to do so could result in FOS investigations and case fees.
FCA’s Review of Historical Commission Use
In September 2024, the FCA extended its review into historical discretionary commission arrangements in the motor finance sector. If widespread misconduct is identified, the FCA will consider compensating affected consumers. Temporary complaint-handling rules have been introduced to manage related complaints.
Key features of these rules include:
- Extending complaint response timeframes until 4 December 2025.
- Allowing consumers to refer complaints to the FOS until 29 July 2026.
- Requiring firms to keep consumers informed and maintain relevant records until 11 April 2026.
Judicial Review and Court Proceedings
The FOS continues to manage complaints amidst ongoing legal proceedings. The Supreme Court’s decision on cases like Johnson v. FirstRand Bank Limited and others will provide further guidance. The FOS will:
- Gather necessary information to decide complaints when appropriate.
- Identify complaints affected by court rulings.
- Continue to issue investigator assessments and final decisions on unaffected cases.
What the FOS Look At
To determine what’s fair and reasonable, the FOS considers:
- Laws, regulations, and FCA rules.
- Codes of practice and industry standards.
- Evidence provided by all parties involved.
If disagreements about facts arise, the FOS will use available evidence to decide what probably happened.
Putting Things Right
If a firm has made a mistake or treated a consumer unfairly, the FOS will recommend appropriate actions to correct the issue. This could include restoring the consumer to their original position and compensating for distress or inconvenience caused.
Conclusion
As the motor finance industry undergoes regulatory scrutiny, transparency and fairness remain critical. Consumers and firms alike must stay informed about evolving rules and their implications. The Financial Ombudsman Service is committed to addressing complaints fairly and ensuring just outcomes for all parties.