The Financial Conduct Authority (FCA) is taking significant steps to address historical finance deals related to leasing motor vehicles. In a move that could have far-reaching implications, the regulator is granting customers additional time to complain about commission payments. This decision comes in the wake of a landmark court ruling by London's Court of Appeal in October, which deemed it unlawful for car dealers to receive commission from banks without customer consent.

Regulator's Consideration of Compensation Scheme

Analysts suggest that a sector-wide compensation scheme could potentially run into billions of pounds. The FCA's consideration of such a scheme reflects its commitment to ensuring fair treatment for consumers in the finance and leasing industry. This industry, which issued approximately 52 billion pounds ($65.6 billion) of motor finance loans last year, now faces the potential liability of up to 30 billion pounds.

Complaint-Handling Extension

The FCA's complaint-handling extension covers not only motor leasing but also motor finance credit agreements. This expansion could lead to an even greater number of affected customers. By including motor leasing in the scope of the extension, the regulator is aiming to provide consistent treatment to consumers using similar products for similar purposes.

As the Supreme Court granted permission to appeal the ruling this month, with a final judgment expected next year, the FCA has taken the proactive step of applying to formally intervene in the case. This will allow the regulator to share its expertise with the court and contribute to the development of a fair and just outcome.

Impact on the Finance and Leasing Industry

The finance and leasing industry is now on the hook for potential compensation claims. Ratings agency Moody's has estimated that the industry could be liable for up to 30 billion pounds. This highlights the significance of the FCA's actions in addressing historical finance deals and protecting consumer interests.

To ensure compliance, the FCA has set deadlines for lenders and consumers. Lenders have until Dec. 4, 2025, to respond to customers' complaints about historic motor finance deals that included non-discretionary commission payments. Consumers, on the other hand, have until July 29, 2026, or 15 months from the date of their final response letter, to refer unsatisfactory responses on non-discretionary commissions to the Financial Ombudsman. Typically, consumers have a deadline of six months for such referrals.

Alignment with Discretionary Arrangements

The deadlines published on Thursday bring the treatment of non-discretionary commission complaints in line with the extension already provided for deals involving discretionary arrangements. The FCA banned "discretionary commission arrangements" (DCAs) in 2021, where finance providers paid car dealers commission based on the interest rate of the motor finance deal. This move aimed to address potential conflicts of interest and ensure transparency in the industry.