FCA to undertake work in the motor finance market – is premium finance next on the horizon?

January 22, 2024

The FCA has published a web page setting out its intentions to intervene again in the motor finance market, and has published a Policy Statement regarding temporary changes to handling rules for motor finance complaints.  The FCA’s views in this matter are similar to the messages that have come out of the FCA recently in relation to premium finance overriders in the context of fair value in insurance broking.

In 2021, the FCA banned discretionary commission arrangements in motor finance provision. This removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance. Firms, however, are rejecting most complaints because they consider that they have not acted unfairly nor caused their customers loss based on the applicable legal and regulatory requirements. The Financial Ombudsman Service (FOS) has considered some complaints rejected by firms, and found in favour of complainants in two recent decisions (see here and here). This is likely to prompt a significant increase in complaints from consumers to firms and the Financial Ombudsman.  The FCA has also published a consumer-facing car finance complaints factsheet.

The FCA will now be taking action under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms. If the FCA finds there has been a widespread misconduct and that consumers have lost out, the FCA will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance.

In a possible link to how the FCA will approach its current disquiet about premium finance and its cost, insurance intermediaries adding premium finance overriders to premium finance arrangements should perhaps take note of the progress of this issue.

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