Motor Finance DCA Complaints – what are the next steps for credit brokers and lenders?
Motor Finance DCA Complaints – what are the next steps for credit brokers and lenders?
On 24 January the FCA held a webinar to address the position on discretionary commission arrangements. This included further clarity on timescales, how to handle complaints in the interim, and how to prepare for a potential redress exercise.
Credit brokers and lenders should now be assessing their exposure and gearing up for an increase in complaints. Audit, Risk and Compliance teams should be closely involved in reviewing the design of approach and monitoring the execution of steps being taken.
Rationale
Just to recap, the FCA is taking steps to ensure there is an orderly way of addressing the high volume of complaints for discretionary commission arrangement sales of motor finance. To do this they have made changes to the complaints handling rules in DISP and are planning a review to assess whether there has been a widespread failure of firms to comply with sales and disclosure practices.
Timelines
The review period is from 6 April 2007, the date the Financial Ombudsman jurisdiction applied to consumer credit and runs to 28 January 2021 when these arrangements were banned. The existing FOS limitation periods of 6 years and 3 years continue to apply, however in practice, most consumers would not reasonably have been aware of the issue for the limitations to take effect.
Skilled Persons review
This has been commissioned to gather evidence FCA needs to decide about whether an industrywide redress scheme is needed and what form it would take. They aim to make a decision by 25 September 2024.
All the firms involved have been notified. They are a sample and FCA may need to go out for more information from a wider group of firms (potentially on record keeping) before end of April. The scope of the FCA’s Requirement Notice is not going to be published.
Responsibilities between credit brokers and lenders
One of the questions being looked at by the Skilled Person is the responsibilities between the broker and the lender. It is possible that both are liable. Customers may have to complain to both the lender and the broker. Brokers do not have to pass the complaints to lenders. DISP 1.7 applies, and the broker can pass a complaint to the lender if they think the lender has responsibility. This position between lenders and brokers is going to be complex and there will no doubt be discussions about the level of responsibility and liability between the two.
Complaints handling
The complaint handling rules have been changed by FCA using a Statutory Instrument. This has paused the requirement to resolve and respond to a complaint within 8 weeks until 25 September 2024. However, the FCA explained that there are several steps they expect firms to continue taking during this paused period.
Firms should:
- Acknowledge all complaints received and update information on their websites so customers understand there is a pause to the resolution timescale for complaints.
- Determine which are in scope (i.e. discretionary commission agreement-based complaints)
- Locate all information that will help to investigate the complaint, this could be from the customer, lender/broker.
- Firms can investigate and resolve elements of complaints that do not relate to discretionary commission agreements.
- Firms need to gear up operationally to handle an increase in complaints and queries.
- Complaints that are already resolved before November 2023 are deemed out of scope for now.
- For complaints in the pipeline, firms will need to think about communications to complainants and information they have to investigate the complaint.
Risk and Compliance functions should consider reviewing business functions are meeting the new requirements and existing DISP rules. A risk assessment should identify any gaps and require mitigation. Board Risk and Audit Committees should be asking for an assessment of the impact and mitigation.
Record keeping requirements
Firms should be checking what records they have and getting these in order. This may be quite a task for records going back up to 14 years across multiple lenders and brokers. The FCA suggested firms should be asking customers to send in the records they hold which means gearing up to receive and process information.
Potential redress liabilities and FCA Notifications
Lenders and brokers should be assessing their potential exposure. This means understanding the potential population of consumers who were sold motor finance under a discretionary commission agreement and the potential redress liability. There was no further information about how to assess the amount of potential redress, although the current FOS decisions give an insight into their view on this. Auditors may ask about work done to quantify the potential liabilities.
The FCA is keen to ensure firms understand their liabilities and responsibilities. Any changes to corporate structure or any changes that might affect liability/redress should be notified to FCA (i.e. no changes to circumvent redress liabilities). Firms should manage financial resources to pay redress and deal with operational costs.
Consultation and next steps
FCA will have a dedicated web page and are not planning any further announcements until the skilled person diagnostic work is complete. If there is a need for an industrywide redress scheme there will be a public consultation by FCA. It is possible this deadline could be pushed further out. The normal period for consultation is three months, however shorter consultation time periods have been used where a situation is urgent.
See our article published in Auto-Retail
How can BDO help?
If you are a motor finance firm who may be impacted by this recent FCA announcement we can help you prepare. We are already supporting motor finance firms to respond to FCA requirements, review their systems and controls, and to provision for additional complaints handling expertise and resources where that might be needed. Please get in touch today if you would like to explore your position.
