The FCA has recently provided an update on motor finance complaints involving Discretionary Commission Arrangements (DCAs). As part of their ongoing review, the FCA is consulting on an extension to the pause until 04^th December 2025. 

Background

In January 2021 the FCA banned discretionary comission arrangements (DCA’s) in the motor finance sector.  The ban was implemented to remove the incentive for brokers to increase the interest rate that customers pay for their motor finance, with the FCA advising firms to review their practices and where harm was identified, address it.

Following the implementation of the ban, motor finance companies began receiving a significant number of complaints from customers and claims management companies acting on their behalf, leading to varying outcomes.

In January 2024, the FCA initiated a S166 review to investigate if customers were overcharged in their motor finance agreements. To prevent differing outcomes and market disruption the FCA implemented a temporary pause on the eight week deadline that firms have to respond to motor finance customer complaints.

 Pause extension and delayed guidance

The FCA have now proposed to extend the complaints pause until at least December 2025 and is not expecting to provide industry guidance until May 2025.

The FCA advise the additional time is required as:-

• They need more time to analyse the data collected from firms. The FCA believe this analysis will assist in determining the impact of DCA’s on credit costs for vehicle buyers.
• A judicial review of a DCA complaint decision made by the Financial Ombudsman Service is underway and the outcome is likely to influence the FCA’s next steps.
• They are considering implementing a redress scheme for affected consumers. This requires careful planning and consultation with industry stakeholders.

What is the FCA consulting on?

The FCA are consulting on the following eight questions

1. Do you agree with our proposal to extend the pause until 4 December 2025 to allow us to complete our diagnostic work and, if necessary, allow time for us to design, consult on and implement the most appropriate redress pathways open to us?
2. What factors, including any unforeseen consequences, should we take into account when deciding whether the pause should end early?
3. Do you agree with the requirement that firms should inform complainants of the pause when they send a written acknowledgement?
4. Do you agree with the proposal to require firms to write to those complainants who have already received a written acknowledgment to explain that the pause has been extended?
5. Do you agree with our proposal that the rules should continue to extend the time limit for referring DCA complaints to the Financial Ombudsman from 6 to 15 months (or 29^th July 2026 if later) where the firm sent its final response within the timeframe specified in the rules?
6. Do you agree with our proposal to require firms to write to complainants who have already received a final response letter if the time they have to refer a complaint to the Financial Ombudsman has been extended?
7. Do you agree with our proposal that the period of the pause should not contribute to the 3-year period that firms are required to keep records of complaints for?
8. Do you agree with our proposal that the rule requiring lenders and credit brokers to maintain and preserve any records that are or could be relevant to the handling of existing or future complaints or civil claims relating to DCAs, is kept in place for an extra 15 months?

How this impacts motor finance firms

Though May and December 2025 seem quite a way into the future, firms still have lots to consider on top of the questions raised by the FCA ,such as:-

• What is their exposure to DCA practices?
• How are they going to communicate with complainants including customers who have already complained about the pause and future updates?
• If a redress scheme is put into place, how will you complete the reviews and arrange for redress to paid, as well as complaints handled.
• How will you stay abreast of FCA developments and the Judicial review outcomes.

Each firm will likely approach these questions differently, but commonalities will include the need for additional resources and expertise. Even firms that have not sold any agreements with DCAs will still require extra resources to handle the increased volume of complaints.

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