Drivers who suspect they were mis-sold car finance deals might have to wait until December 4 next year for potential compensation, following a decision by regulators to grant firms additional time to address complaints.
The Financial Conduct Authority (FCA) has announced it is extending the deadline for motor finance companies to respond to customer grievances due to delays in obtaining necessary data from these firms.
The watchdog is investigating whether lenders engaged in mis-selling by utilising hidden discretionary commission models, which allowed brokers and car dealerships to inflate interest rates on finance agreements, thereby earning higher commissions at the expense of unwitting customers.
This practice, which often resulted in customers paying significantly more than they would under the flat fee structures now prevalent in car finance, was outlawed in 2021 after regulatory scrutiny revealed its costly impact on drivers.
Earlier in the year, the FCA had cautioned lenders to strengthen their financial reserves in anticipation of a surge in claims. However, the authority later deferred its own reporting deadline for the investigation until May 2025.
On Tuesday, the FCA cited the need for an “extended pause” in complaint handling as a means to potentially establish a compensation scheme, stating: “It is too early to say if we will intervene in this way, but based on our work so far, it is more likely than when we started our review.”
The delay has been partly attributed to the regulator’s challenges in acquiring the required data from firms, with the FCA noting that this process has taken longer than anticipated.
The news follows Close Brothers, a leading provider of motor finance, announcing the sale of its asset management business to a private equity firm for £200 million to bolster its finances during the investigation.
The bank had previously earmarked £400 million to cover potential expenses, as declared in March, and also cancelled dividend payouts for 2024.
Lloyds, the owner of car finance company Black Horse, stated earlier this year that it was reserving approximately £450 million to handle potential costs related to the issue and any compensation payouts.
