The Financial Conduct Authority (FCA) has issued a stern warning to car finance lenders, accusing them of attempting to dictate their own liability for compensation in an ongoing review into historical mis-selling. According to court filings, the regulator employs the stark phrase 'foxes guarding the henhouse' to convey its concern that lenders are seeking to control the outcome of potential redress for consumers.
The FCA's investigation into discretionary commission arrangements (DCAs) in the motor finance sector has revealed a significant increase in complaints from consumers who believe they were unfairly charged. These arrangements, which allowed brokers to adjust interest rates and earn higher commission for more expensive loans, were banned in January 2021. However, following this prohibition, the regulator launched a review into past practices.
Documents submitted by the FCA shed light on the escalating tension between the regulator and industry stakeholders as the investigation progresses. The regulator's position suggests that lenders are attempting to mitigate their financial exposure by influencing the framework for compensation, potentially at the expense of consumers who may have been overcharged on their car loans.
The review could have substantial implications for both lenders and consumers, with potential compensation payouts running into billions of pounds. A similar outcome to the PPI scandal is possible, where firms were forced to pay out £38 billion in redress. The FCA has already indicated that it expects firms to be prepared to pay redress if necessary, pausing the eight-week deadline for firms to respond to relevant complaints while its investigation is underway.
The regulator's intervention serves as a reminder of its commitment to consumer protection and fair outcomes. The outcome of this investigation will not only shape the future of car finance compensation but also send a clear message to the financial services industry about accountability for past practices.