We see a range of complaints about car finance agreements – from admin issues to affordability. Increasingly, we’re hearing from customers about the fairness of commission arrangements when they took out a car finance agreement.
Viv Kelly, Ombudsman Director, who leads the consumer credit casework team, outlines what we’re considering as we develop our approach to these complaints and how financial businesses and claims handlers can help us to progress our investigations.
We’re seeing a change in the type of car finance complaints referred to us. In our annual complaints data for 2022/23, we highlighted an increase in complaints about car finance related commission, fees and charges, with customers increasingly contacting us because they think the way their car finance agreement was arranged, and the amount of commission paid, was unfair.
We’re hearing from customers that the credit brokers or intermediaries who arranged the finance (usually a car dealership) didn’t tell them about the commission they would earn for arranging the finance. We’ve heard from customers who say they think the commission model used by the lender was unfair, that the advice the credit broker gave them wasn’t impartial, or that the credit broker didn’t secure the best interest rate available.
The complaints link back to work by the FCA to review how the car finance sector arranged its credit agreements, to see if it led to customers unfairly losing out. The FCA published its final findings in 2019 and went on to ban discretionary commission models.
The customers who’ve contacted us so far are mainly represented by professional claims management companies (CMCs) or legal claims handlers – although of course customers do not need representation to bring a complaint to us, our service is free and easy to use, and we publish information that explains how customers can contact us directly if they want to make a complaint about car finance commission.
It’s likely there will be a range of outcomes
So far, these complaints aren’t about a single type of credit agreement and there are a number of different commission models and structures in place – as well as different business relationships involved. We’re seeing quite a lot of variety and complexity across different complaints and it will take time to work through this. Businesses can help to speed up this process by thoroughly preparing case files and including the initial disclosure documentation and other sales documentation.
We always look at the individual circumstances of a complaint. And, as we do with all complaints, we look at the law, regulatory rules and guidance that applied at the time, and good practice, alongside what is fair and reasonable in all of the circumstances.
While there is quite a lot of nuance across the individual complaints and each will turn on its own individual merits, we are beginning to see some commonalities in groups of cases that will help us to further establish our approach to investigating these complaints.
We have been asked by some stakeholders whether we think this is “the next PPI” in terms of scale and numbers of complaints we uphold. Crucially, the size of the potential pool of complaints on this topic is significantly smaller than that for PPI. We have been working closely with industry stakeholders and with members of the financial services regulatory family as the picture develops. This issue is also part of the Wider Implications Framework.
Working with businesses and professional representatives to explain our approach
We understand that this issue is a complex one for businesses and that it can take some time for them to collate the information that is needed to enable a thorough investigation. We have been working closely with businesses to explain the information and evidence we need, to communicate our expectations and to encourage them to work with us in a timely manner. It is important that our customers (both consumers bringing a complaint and financial businesses responding) provide us with information as soon as possible when we ask for it and certainly within the agreed timescales.
It is also important that businesses are providing meaningful and informative responses to consumers when they first bring their complaints to them, for example, being clear about the type of commission arrangement and any commission payment that was made. This will help to ensure that complaints will only come to this service where necessary. It should also mean that when businesses send their business files through to this service, the relevant information has already been surfaced and therefore is readily available.
We have recently issued some first views and provisional decisions to a number of businesses setting out our initial thinking and to give them, and the professional representatives, the opportunity to present any information that they think is relevant for consideration, before we go on to make any final decisions.
A number of these have been non-uphold views. These are cases where it was clear that there was no issue with the commission model, because, for example, the broker only received a small amount of commission under a fixed payment arrangement, or even no commission at all. We’ve also issued a number of uphold views, where there was a Difference in Charges (DiC) model in place and we believe this had led to consumer detriment.
As per the FCA rules, it is required that businesses seek to resolve complaints they receive in line with the approach we are setting out. Where customers do complain to us, we will also expect them to see the due diligence required of businesses under the regulator’s rules and meaningful case files will be readily available for us to progress complaints in a timely manner.
We’re also engaging with claims management companies and law firms that have referred complaints to our service, to ensure that any complaints sent to us on behalf of consumers are clear and specific about the individual circumstances of the complaint. Professional representatives are required to identify and refer to us the complaints that have not been responded to by businesses in line with our approach.
Our commitment, as it is in every case we see, is to deliver an outcome which is fair and reasonable. It may take a little more time to proceed to the final stages of our process, but it is incredibly important that we carefully consider all of the evidence and submissions in this complex and evolving area, in order to reach the right outcome in each complaint.
We will continue to work with businesses and professional representatives as our approach develops, so that they can adopt and apply it early on in their cases handling processes. We will publish more guidance and examples to help businesses handle complaints and to help prevent complaints coming to the Financial Ombudsman Service.
By working together in this way, we can progress our investigations appropriately and resolve disputes at the right stage.
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