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Regulator warns car finance firms to have enough cash for probe

Regulator warns car finance firms to have enough cash for probe
Emma Lunn
Written By:
Emma Lunn

The Financial Conduct Authority (FCA) has written to motor finance firms to remind them they must be prepared to cover the cost of complaints linked to the mis-selling of car finance loans.

The regulator is currently reviewing the historical use of motor finance discretionary commission arrangements (DCAs). It said it has observed firms taking different approaches to account for the potential impact of previous use of DCAs on their financial resources. So, it has written to firms to remind them they must maintain “adequate financial resources at all times”.

Millions of people signed up to car finance deals could be due compensation due to being mis-sold the contracts. The issue affects people who bought a car or van on motor finance from the likes of Barclays Partner Finance, Blackhorse and Santander before 28 January 2021.

The FCA said that, while each firm will need to examine its own specific circumstances, it would expect this would include planning for any additional operational costs from increased complaints and, where applicable, to meet the costs of resolving those complaints.

FCA has paused firms’ responses

The FCA has put a pause on firms responding to complaints received on or after 17 November 2023 up to 25 September 2024, while it investigates the problem. But it has told firms to continue to investigate the complaints they receive involving a DCA.

It says this will help ensure firms are able to act promptly to resolve complaints if the regulator decides the pause should be lifted and complaint handling should resume.

Car finance firms also need to consider the Information Commissioner’s Office guidance on responding appropriately to data subject access requests. Firms should confirm, if a consumer asks, whether their agreement involved a DCA, even if they haven’t submitted a data subject access request.

The FCA also said that firms should notify the regulator if they are involved in litigation relating to motor finance commissions that are subject to, or likely to be subject to, appeal to the High Court or Court of Appeal.

Regarding the probe, the FCA said many firms are struggling to promptly provide the data it needs. Reasons for this include data being stored on multiple systems and/or being spread between lenders and brokers. In some older cases, firms have not retained all relevant records.