The Financial Conduct Authority (FCA) has confirmed it won’t be able to set out the next steps into its review of discretionary commission arrangements (DCA) until May 2025.
The original review was due to be completed in September this year.
A pause on complaint handling in relation to DCAs will also be extended until December 4, 2025.
Under the FCA’s proposals, firms will not have to issue a final response to DCA complaints until after December 4 at the earliest.
The FCA said this is due to the fact that its next steps could involve consulting on a redress scheme and it may take until December to confirm how this would be implemented by finance firms.
It also said the volume of complaints coming through in relation to DCAs threatened to “overwhelm” the current systems in place to deal with them.
It’s now more likely that there will be a structured redress system put in place for consumers by the FCA, although no final decisions have been made yet.
The FCA said that moving back the results of the review to May 2025 will also give it more time to analyse the data it has collected from firms and assess the outcome of the Barclays judicial review of the Financial Ombudsman’s decision to uphold a DCA complaint.
The regulator also said that while some firms had provided the necessary data, others hadn’t within the requested deadline and this has slowed down the review process.
Nikhil Rathi, FCA chief executive, said in the regulator’s official Inside FCA podcast: “When these DCAs were used before the ban, were they operating in a way that was consistent with regulation at that time?
“We are assessing all that data to understand if there were breaches of law and how widespread they were. If there have been breaches, what is the fair route to redress for consumers?
“We have to understand the scale of the issue, but we also have to make sure the market functions well now and in the future. We have to ensure any action we take will support the supply of motor finance that consumers depend upon. It’s important that the market continues to function fairly and well in the future too.”
In a statement the FCA explained: “Our next steps could involve consulting on a redress scheme.
“This is why we intend to take the precautionary step of pausing complaint handling until 4 December 2025, as it may take until then to confirm how firms would implement it.
“Or it could involve asking firms to start dealing with complaints again as usual, in which case we would consult on ending the pause earlier.
“If we can set out our proposed next steps sooner, we will.”
The FCA launched its review into whether motor finance customers have been overcharged because of the past use of DCAs in January 2024.
Before January 2021, some lenders had allowed dealerships acting as their brokers to adjust the interest rates they offered customers for car finance. Typically, the higher the interest rate, the more commission the broker received. This was known as a discretionary commission arrangement.
The FCA banned this practice in 2021, believing discretionary commission arrangements created an incentive for brokers to increase how much people were charged for their car finance.
Despite banning the practice, there has been a high number of historic complaints. Indeed, the Financial Ombudsman Service (FOS) has said it has 20,000 open complaints linked to motor finance commission which prompted the FCA to assess the extent of the problem.
The FCA said that when it confirmed its review in earlier this year, it paused the eight-week deadline for motor finance firms to provide a final response to relevant customer complaints.
It said the pause was to prevent “disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we assessed the issue and determined the best way forward”.
The FCA further stated that it is “working hard to understand how DCAs affected the cost of credit for people borrowing money to buy a vehicle. We’re assessing thousands of records spanning 14 years.
“Firms involved in our review have engaged with us constructively, but many have struggled to supply the data we need within the requested time.”
Reasons for this include firms not keeping older data, and data being stored on multiple systems, or being spread between lenders and brokers.
Barclays Partner Finance judicial review
A hearing is expected to take place in the autumn in relation to Barclays Partner Finances’ judicial review into the use of DCAs.
The court will consider whether to grant permission and hear the claim.
The judicial review will consider legal issues highly relevant to the FCA’s review.
It is also expecting judgments soon in other cases heard by the Court of Appeal that may be relevant in determining its next steps.