Key takeaways

Key points from the FCA’s statement on its ongoing motor finance work and related consultation on extending the temporary changes to handling rules for motor finance complaints are set out below. The FCA has also published a podcast in which its CEO Nikhil Rathi discusses the development in further detail.

• New deadline for publication of review findings: The FCA now intends to set out the findings of its review, and whether it plans to introduce an alternative way of dealing with discretionary commission arrangement (DCA) complaints, by the end of May 2025 (previously expected by 24 September this year). This is because of delays in obtaining necessary data from firms, and the need to assess the awaited outcome of judicial review proceedings relating to a Financial Ombudsman (FOS) decision to uphold a DCA complaint as well as an awaited Court of Appeal judgment in a test case involving three cases on motor finance undisclosed commission. However, if the FCA can set out its proposed next steps sooner than next May, it will.
• Extension of complaints handling pause: In light of the above revised timing, the FCA is consulting on proposals to extend the current pause to the 8-week deadline for firms to respond to motor finance complaints involving a DCA. Under the proposals, firms will not have to issue a final response to DCA complaints until after 4 December 2025 at the earliest (previously it was 26 September 2024 at the earliest). The pause to complaints handling will now apply to any DCA complaint received by a firm during the period beginning 17 November 2023 and ending 4 December 2025.

This extension is because the FCA’s next steps could involve designing and consulting on a redress scheme so it may take until December 2025 for it to confirm how firms would implement any such scheme. Firms should note that while the FCA states it is too early to say whether any redress intervention will be necessary, based on its work so far it thinks it is more likely than when it started its review. If the FCA decides not to introduce an alternative way of dealing with complaints, it will consult on ending the pause earlier. In this case, firms would start dealing with complaints again in the usual way.

• Keeping complainants informed about complaint handling time limits: The FCA proposes to maintain the requirement for a firm’s acknowledgement of a complaint to include an explanation of the pause to the time limit rules in DISP 1.6.2R. For DCA complaints received in the period starting with 17 November 2023 and ending with 25 September 2024 where a final response has not been sent, the proposal is to require firms to write to the complainant to inform them of the extension to the pause and direct them to the FCA’s website which explains the reason for it (regardless of whether the firm has already written to the complainants explaining the initial pause).
• Extension of FOS complaint referral deadline: The FCA is proposing to give consumers who receive a final response letter from a firm between 12 July 2023 and 29 January 2026 until the later of 29 July 2026 or within 15 months of the date they were sent the final response letter to refer a complaint to the FOS (instead of the usual six months). For final responses sent between 12 July 2023 and 29 April 2025, the later date will be 29 July 2026. Where a consumer receives a final response letter on or after 30 January 2026 (ie 8 weeks after the end of the extended pause) the time a complainant will have to refer their complaint to the FOS will revert to being within six months of the date the final response is sent.

The extension is so that consumers will not have to decide whether to refer their complaint to the FOS before the FCA announces next steps in its review. The FCA has updated the relevant webpage for consumers accordingly.

The FCA also proposes to require firms to write to consumers who were sent a final response letter during the period beginning 12 July 2023 and ending 25 September 2024 to explain that they now have until 29 July 2026 to refer their complaint to the FOS.

• Record keeping and retention: The FCA also proposes to extend the rules it made in its January 2024 policy statement on requirements to maintain and preserve relevant records, which would now remain in place until 11 April 2026.
• Effect of complaints handling pause on lodging of complaints/legal action: The FCA points out that neither the original pause rules, nor the changes now proposed to extend the rules, prevent consumers or their representatives from lodging DCA complaints with firms or taking legal action against firms.
• Business as usual for firms’ investigation of complaints received: As per the January 2024 policy statement introducing the original pause rules, firms are encouraged, despite the pause, to continue to progress DCA complaints they receive by investigating and collecting evidence that could help with their eventual resolution. This is because it remains highly likely that firms will need to take similar steps under any alternative complaint handling approach that the FCA might decide on.
• What about the FOS? The FOS has published an update on car finance commission complaints in which it recognises that both the pending judicial review and Court of Appeal test case outcomes (see above) could impact its approach to complaints that include similar issues. It is unlikely to issue final decisions on affected DCA complaints pending the results of these proceedings. It will continue to keep this information updated.
• Adequate resources: In the podcast Nikhil Rathi stresses the need for firms to maintain adequate financial resources referring on several occasions to the letter sent to CEOs in April 2024.  The FCA expects firms to consider the impact of any capital reductions, such as dividend payments, on the firm’s ability to meet potential liabilities that may arise from any future redress scheme. Mr Rathi makes it clear that any significant capital reductions should be notified to the FCA.

Next steps

The consultation on extending the temporary changes to handling rules for motor finance complaints closes on 28 August 2024. The FCA will publish its feedback and final rules in a policy statement by 24 September 2024.

This FCA timeline sets out the steps in the revised work plan.

If you would like to discuss any aspect of the FCA's statement and consultation paper, please get in touch with any of the people listed above or your usual Hogan Lovells contact.

Authored by Julie Patient and Virginia Montgomery.