Background

In January 2021, the FCA banned the use of DCAs in the motor finance sector. DCAs allowed brokers to set or adjust the interest rates on motor finance agreements, often leading to conflicts of interest where brokers had an incentive to increase rates for higher commissions. The ban was a significant step towards protecting consumers from unfair practices. However, the legacy of these arrangements has led to a surge in complaints from consumers who believe they were overcharged due to the use of DCAs.

Current Situation

Since the ban, motor finance firms have received a substantial number of complaints related to DCAs. Many of these complaints have been rejected by firms, leading to a significant increase in referrals to the Financial Ombudsman Service (“FOS”). To prevent disorderly outcomes and market disruptions, the FCA implemented a temporary pause on the usual eight-week deadline for firms to respond to DCA-related complaints. This pause was initially set to last until September 2024.

Proposed Changes

The FCA is now proposing to extend this temporary pause until December 2025. This extension is deemed necessary due to the complexity of the diagnostic work the FCA is conducting, which includes analysing data from firms (through reporting requirements), reviewing the impact of ongoing litigation, and assessing the potential need for a statutory consumer redress scheme.

The key proposals in the CP include:

1. Extending the Complaint Handling Pause: The pause on the eight-week deadline for motor finance firms to respond to DCA complaints will be extended until December 2025. This extension is designed to provide the FCA with sufficient time to complete its diagnostic work and consider the need for a statutory redress scheme.
2. Consumer Rights: The FCA proposes to continue allowing consumers more time to refer their complaints to FOS. Consumers who receive a final response from their motor finance provider will have up to 15 months to escalate their complaint, or until July 2026, whichever is later.
3. Record-Keeping Requirements: Firms will be required to maintain and preserve relevant records that could be needed for handling existing or future complaints related to DCAs. This requirement will be extended until April 2026.

Rationale and Impact

The FCA believes that extending the temporary changes is essential to avoid inconsistent outcomes and unnecessary market disruptions. The extension will allow the FCA to conduct thorough diagnostic work, which includes assessing whether widespread consumer harm has occurred and, if so, determining the most appropriate redress mechanism.

From a consumer protection standpoint, this approach is intended to ensure that any compensation owed to consumers is delivered in a fair and timely manner. For firms, the extension provides additional time to prepare for potential resolutions and to manage their complaints processes more effectively.

Conclusion

The FCA’s CP outlines a clear and measured approach to dealing with the ongoing challenges in the motor finance sector related to DCAs. By extending the temporary changes to complaint handling rules, the FCA aims to balance the need for consumer protection with the operational realities faced by firms. Stakeholders are encouraged to submit their feedback on these proposals by August 28^th 2024, to help shape the final regulations and ensure they effectively address the issues at hand.

Next Steps

The FCA invites comments on the consultation paper until August 28^th 2024. Following this, the FCA will review the feedback and publish a policy statement by September 24^th 2024, outlining the final rules and any further steps to be taken.

This CP represents a critical step in ensuring that the motor finance market remains fair and transparent, protecting consumers from potential harm while maintaining the integrity of the financial services industry.

How Can Complyport Help?

As experienced regulatory consultants, Complyport can assist firms in understanding the temporary changes to Motor Finance Complaint Handling Rules. We offer tailored support to ensure compliance and help firms navigate the complexities of the regulatory environment.

Contact our team of Authorisation Consultants for personalised support. Complete the form below to book a FREE consultation.

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The post Extending Temporary Changes to Motor Finance Complaint Handling Rules first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

The range of targeted temporary measures cover:

motor finance

high-cost short-term credit (including payday loans)

other credit products such as buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking.

There will be a 3 month payment freeze for motor finance, buy-now paylater (BNPL), rent-to-own (RTO) and pawnbroking agreements. For high  cost short term credit (including payday loans) payments will be frozen for  one month with no additional interest to be charged.

Motor finance:

Firms to provide a 3 month payment freeze to customers who are having temporary difficulties meeting finance or leasing payment due to coronavirus. If customers are experiencing temporary payment difficulties due to coronavirus and need use of the vehicle, firms should not take steps to end the agreement or repossess the vehicle.

Firms should not alter Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way that is unfair. For example, firms should not try to recalculate PCP balloon payments based on a temporary depreciation of car prices caused by the coronavirus situation. The FCA expect firms to act fairly where terms are adjusted.

Where a customer wishes to keep their vehicle at the end of their PCP agreement, but does not have the cash to cover the balloon payment due to coronavirus-related payment difficulties, firms should work with the customer to find an appropriate solution. Given the increased potential for disparity between the balloon payment and the value of the vehicle in the current climate, firms should ensure that solutions do not lead to unfair outcomes. For example, refinancing the balloon payment might not be appropriate in the circumstances.

High-cost short-term credit (including payday loans):

Firms to provide a 1 month payment freeze to customers facing temporary payment difficulties due to the coronavirus pandemic. No additional interest should be charged to the customer as a result of the payment freeze. This shorter period reflects the much shorter length of most of these loans and the higher interest rates compared to other high cost credit products.

The FCA expects firms to use the deferral period to engage with their customers to understand whether they are likely to be in a position to resume payments. Where the customer continues to face payment difficulties the FCA expects firms to provide forbearance in line with its rules. This could include one single payment after the end of the term or by a number of smaller instalments.

High-cost-short-term-lenders are also reminded, like all lenders, to consider whether immediate formal forbearance may be more suitable if a customer was already in financial difficulty before the impact of coronavirus. If the consumer expects their financial difficulties to last longer than a month, then immediate forbearance may be more suitable.

Complyport has warned that electronic and digital processes must still fulfil existing legal requirements.   The FCA recently confirmed it would accept electronic signatures for fund-related applications and on all applications from mutual societies.

The FCA has stated that appropriate steps need to be taken onboard to minimise the risks involved with using electronic signatures, especially those which may impact their responsibility to treat customers fairly with due care.

Paul Grainger CEO of Complyport Ltd:

“Financial services practitioners need to ensure that despite for many of them now they are working from home, there is a responsibility on them to ensure that they are up to speed on the  FCA rules introduced during the COVID-19 crisis.”

“So we would expect firms to take a pragmatic approach to how they interpret their own procedures in this regard.”

ENDS

Notes to Editors:

For media enquiries:

John Kaponi –  IPM Media Consulting Ltd:

07875 542 969

Notes to Editors:

1. To arrange an interview with Paul Grainger CEO of Complyport Ltd please email or call John Kaponi

2. Complyport is a leading compliance and regulatory consultancy providing bespoke, practical solutions for all manner of regulated firms both in the UK and overseas. Our specialist compliance services expertise can either sit alongside your current compliance teams or, for an independent solution, we can bring our team in-house.
3. Established in 2002, Complyport combines former regulators, industry practitioners and legally qualified individuals to offer our clients an unparalleled, professional team.

The post Press Release – Financial Services Firms Warned To Keep Within “The Rules” During The COVID-19 Crisis first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

News Releases:

1. https://complyport.com/press-release-automotive-finance-firms-urged-to-comply-with-fca-requirements-despite-covid-19/
2. https://complyport.com/press-release-mortgage-brokers-and-financial-advisers-must-ensure-they-comply-with-fca-requirements-despite-working-from-home/

Complyport was featured in the following publications over the last week:

1. http://www.bodyshopmag.com/2020/news/dealerships-warned-to-remember-fca-rules/
2. https://www.leasingbrokernews.co.uk/ensure-you-remain-compliant-under-covid-19/

The post Complyport In The Press – 18-22 May first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

Changes include the FCA accepting digital signatures on loan agreements; more online meetings with clients, which will require verification methods of income, address and affordability of loans and agreements to have inbuilt rigour and to be compliant with current legislation.

Complyport has warned that electronic and digital processes must still fulfil existing legal requirements.   The FCA recently confirmed it would accept electronic signatures for fund-related applications and on all applications from mutual societies.

The FCA has stated that appropriate steps need to be taken onboard to minimise the risks involved with using electronic signatures, especially those which may impact a firm’s responsibility to treat customers fairly with due care.

The FCA said: “Firms should consider the client’s best interests rule and the fair, clear and not misleading rule to ensure that, when a client signs a document electronically, this does not make it more difficult for the client to understand what they are agreeing to.”

Paul Grainger CEO of Complyport Ltd commented:

“The COVID-19 crisis has meant that we have lost the ability to have physical 1-1 meetings to check applications and explain the implications of legal agreements entered into by customers.   However, automotive finance lenders and motor dealership staff dealing with loan finance must still ensure that in the new “norm” of digital meetings and electronic transactions, the finance process is compliant with FCA requirements. Firm’s must fully consider the legal position around the use of electronic signatures and, indeed, around other associated areas such as explicit consent needed in the processing of certain data.”

“So we would expect firms to review their processes and procedures. We expect firms to take a pragmatic approach to adapting process and procedures to facilitate the provision of suitable advice and transactions for their customers, whilst ensuring they remain compliant with FCA requirements..”

Paul Grainger CEO Complyport Ltd further noted:

“Complpyort has warned firms that where firms do move from wet-ink to electronic signatures, they should monitor data including conversion rates, cancellations and complaints.”

The FCA has also provided guidelines in a  3-months payment freeze to customers that are facing financial difficulties in meeting their finance or leasing payments due to coronavirus and suggests firms not to end any agreements or repossess vehicles.

Firms may fairly adjust the terms of a contract affected by coronavirus if needed. Firms should not use temporary depreciation of car prices to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term. They should offer to the affected customer appropriate solutions in case they wish to keep their vehicle at the end of their PCP agreement but cannot cover the balloon payment due to financial difficulties caused by the coronavirus.

ENDS

For media enquiries:

John Kaponi –  IPM Media Consulting Ltd:

07875 542 969

Notes to Editors:

1. Complyport is a leading compliance and regulatory consultancy providing bespoke, practical solutions for all manner of regulated firms both in the UK and overseas. Our specialist compliance services expertise can either sit alongside your current compliance teams or, for an independent solution, we can bring our team in-house.
2. Established in 2002, Complyport combines former regulators, industry practitioners and legally qualified individuals to offer our clients an unparalleled, professional team.

The post Press Release – Automotive finance firms urged to comply with FCA requirements despite COVID-19 first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

Motor Finance

The FCA advises firms to allow a 3-months payment freeze to customers that are facing financial difficulties in meeting their finance or leasing payments due to coronavirus and suggests firms not to end any agreements or repossess vehicles.

Furthermore, the FCA proposes that firms should:

• Fairly adjust the terms of a contract affected by coronavirus if needed. Firms should not use temporary depreciation of car prices to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term.
• Offer to the affected customer appropriate solutions in case they wish to keep their vehicle at the end of their PCP agreement but cannot cover the balloon payment due to financial difficulties caused by the coronavirus.

High-cost short-term credit (including Payday loans)

The FCA proposes that high-cost short-term credit firms should provide a 1-month interest-free payment freeze to customers that are adversely affected by the coronavirus. This shorter period reflects both the short length of most loans and prevents firms from acquiring additional interest during the freeze period. At the end of the freeze period firms are encouraged to allow customers to pay the deferred payment affordably, either as one single payment or multiple smaller instalments.

High-cost short-term credit firms should also consider whether formal forbearance may be more suitable in the case where a customer has been suffering from financial problems before the coronavirus.

Other credit products (RTO, BNPL, or pawnbroking agreements)

Firms that enter into rent-to-own (“RTO”), buy-now-pay-later (“BNPL”) or pawnbroking agreements should provide a 3-month payment freeze to customers facing payment difficulties due to coronavirus.

The FCA suggests that:

• Pawnbrokers should give a 3-month payment freeze to their customers and, if the redemption period has already ended, they should not issue a sell notice for items that have been pawned. If the pawnbrokers have expressed their intention to sell an item, they should postpone the sale for the period of the payment freeze.
• Firms should extent the promotional period of a BNPL customer for the period of the payment freeze.
• RTO firms should allow a 3-month payment freeze and, in the case where a customer requires the goods during that period, repossession should not be permitted.
• If pawnbrokers or RTO firms are not allowed to redeem, collect, or repossess their goods due to social distancing, they should not pass on to their customers any additional fees incurred as a consequence.

The FCA advises that in most other loan freeze arrangements, firms will be able to charge interest rates during the payment freeze period but, for those customers who require full forbearance, their interest rates should be waived. The  current forbearance arrangements, such as suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments, will still be applicable for customers with pre-existing financial problems.

The measures proposed by the FCA do not limit firms from providing more favourable terms to their customers if needed.

How we can help: Should you need any guidance or assistance in dealing with issues related to Coronavirus (COVID-19) or matters relating to compliance with FCA or related regulatory matters, please contact:

• Jan Hagen – jan.hagen@complyport.co.uk

The post Coronavirus (COVID-19) Update: The FCA Proposed Supportive Measures For Motor Finance And High-Cost Credit Customers first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .