In his speech on ‘Investing in outcomes: a regulatory approach to deliver for consumers, markets and competitiveness’ at the Morgan Stanley European Financials Conference, Nikhil Rathi said the FCA has intervened now in the motor finance commission issue to establish the facts, and “aims for earlier clarity than previous redress events”.
In January 2024, the watchdog confirmed it was probing the motor finance market for any signs that drivers “lost out” because of secret commission arrangements.
The issue affects people who bought a car or van on motor finance, including hire purchase (HP) or personal contract purchase (PCP) from the likes of Barclays Partner Finance, Black Horse and Santander before January 2021.
This is when the FCA banned car finance lenders from making ‘discretionary commission arrangements’ with brokers – deals where they were able to adjust interest rates offered to customers on a loan and benefit from bigger commission from the lender if the customer accepted the deal.
Essentially, it meant brokers had a financial incentive to offer maximum rates to customers, rather than finding them the cheapest deal, resulting in motorists probably being overcharged for their loans.
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‘Balancing act’
At the time the FCA confirmed its investigation looking at whether widespread misconduct was apparent, which would result in redress for affected individuals, some campaigners suggested the issue could become “the UK’s second-biggest reclaim after PPI”.
However, Rathi said the FCA “aims to act proactively and thoroughly to understand the problem” and is “working hard to get to the bottom of the facts”, with the next steps to be set out by the end of September.
He added that, with the first decisions on consumer complaints coming out of court, “we acted”.
But there is a “balancing act” in ensuring consumers are treated fairly while at the same time meeting its objective of ensuring markets function well – a market where 78% of households own a car.
Rathi said: “Understandably, there are different estimates from analysts and campaigners of the cost and scale of this issue.
“Some, not us, have sought to draw comparisons with PPI. In PPI, the regulator’s work took place over many years and this and action on redress dragged on for some time.
“With motor finance, because of the impact on firms, as well as consumers, we want to clarify matters in a more condensed time frame and on a basis that is robust and fair. Critically, this will depend on firms cooperating fully and providing data comprehensively and promptly as well as, potentially, the speed of any court processes.”
He added: “While certainty is not something I can provide today, and I cannot prejudge what we might find, I can say in my view it is improbable we will find nothing to report as we look at historical motor finance sales. Some firms will be better-placed than others. Equally, I do not anticipate this issue playing out as PPI did, not least because we have intervened early in the interests of market orderliness.”
Related: More than one million car finance complaints submitted
