Having hammered the insurance industry for its practice of “walking up” renewal prices for existing car and home policyholders, the FCA (Financial Conduct Authority) has a new target in its sights – the motor finance market.

Firms which generate revenue from providing motor finance include Close Brothers (CBG), Inchcape (INCH), S&U (SUS) and Secure Trust Bank (STB).

In 2021, the regulator banned commission models which gave motor dealers, finance providers and finance brokers an incentive to bump up customers’ costs after its research found discretionary models had led to increased prices for consumers.

Its research also found firms often failed to give customers ‘timely, relevant information’ in order for them to make what it called ‘more appropriate decisions’, not just in the motor finance business but across the whole credit sector.

The FCA said it would look closely ‘at any attempt by a motor finance firm to introduce a commission model that could lead to the same harm thatwe have sought to ban’, while monitoring how well firms complied with the new rules including carrying out ‘mystery shopper’ point-of-sale exercises to measure lenders’ control over dealer networks.

On 11 January this year the regulator said a high number of customers had complained to motor finance firms claiming compensation for commission deals arranged prior to the ban, but firms were rejecting most complaints because in their opinion they hadn’t acted unfairly based on the applicable legal and regulatory requirements at the time.

However, in two new cases the Financial Ombudsman has upheld customers’ complaints and some County Courts have also found in favour of complainants.

Therefore, the FCA is bringing to bear the full power of the Financial Services and Markets Act 2000 to review all historical commission arrangements across several firms and is pausing all complaints while it investigates.

Sheldon Mills,  FCA executive director of Consumers and Competition, warned companies: ‘If we find widespread misconduct, we will act to make sure people are compensated in an orderly, consistent and efficient way.’

So far there seems to have been little reaction to the news in the financial press, but well-known consumer champion Martin Lewis has called it a ‘huge announcement which may mean a pay-out for millions’.

On his back-of-the-envelope numbers, ‘at the top end this could be PPI-type scale’ says Lewis. FT Advisor puts the total industry costs of the PPI (payment protection insurance) scandal at £50 billion, with the big high-street banks bearing the impact for more than a decade.

Lewis believes compensation could be for the interest on the motor loan, the commission, or even the whole loan in some cases. 

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