Car loan commission cases "expose firms' legal obligations", says FCA's chief executive

Any action taken on car loan discretionary commission complaints will be much swifter than that implemented for payment protection insurance (PPI) misselling last decade, according to the chief executive of the Financial Conduct Authority.

Nikhil Rathi warned that a speedy resolution to the FCA's review of historic motor finance sales "will depend on firms cooperating fully and providing data comprehensively and promptly".

"There are elements of these cases that expose firms' legal obligations and whether these were met in particular situations," he said.

Rathi added: "In my view it is improbable we will find nothing to report as we look at historic motor finance sales. Some firms will be better placed than others. Equally, I do not anticipate the issue playing out as PPI did, not least because we have intervened early in the interests of market orderliness."

With the PPI misselling issue the regulator's work took place over many years and more than 10 million customers had received compensation before the 2015 decision by the FCA to set a 2018 deadline for all claims in order to bring the issue to a close and allow the financial services sector to begin rebuilding consumers' trust.

On the motor finance review, Rathi said the FCA recognises this work "has generated some uncertainty" in terms of how the FCA will assess outcomes and has also "attracted speculation" about whether affected consumers should get compensation and how that could be calculated. He insisted the regulator's team is working hard to understand the situation and to set out the next steps by September.

Rathi said: "We are mindful not just of ensuring that consumers are treated fairly but also our objective to ensure markets function well. And in a country where 78% of households own a car, it is obvious that we need to maintain a functioning, accessible and competitive motor finance market."

Moving forward, he sees the Consumer Duty as a means of prevention, to reduce the need and costs of redress in future and to help firms be competitive. "Rectifying issues is costly. It takes time. It damages reputations. It deprives firms of cash that could fund investment," Rathi told the Morgan Stanley European Financials Conference.

Many firms have approached the Consumer Duty in the right spirit, putting themselves in customers’ shoes, he said. They have:  

• used simpler and more accessible language  
• been more upfront about product exclusions  
• reviewed fair value, with some fees being removed or restructured  
• ended sludge practices which inhibited customer switching 
• committed to notify savers at least annually about better interest rates  
• made significant technology investment in customer insights and service

He said the FCA will look favourably on firms taking reasonable steps to identify and proactively address concerns, even if mistakes are made.

And he denied that the FCA aims to regulate prices. It will act where there are "manifestly unacceptable outcomes even with competition", but the onus is on firms to satisfy themselves about fair value, he said.

The majority of car buyers are satisfied with their experience buying finance from dealers, according to research by JudgeService.

The research was prompted by the Financial Conduct Authority (FCA) probe and the mis-selling campaign launched last month by Money Saving Expert, the consumer website fronted by Martin Lewis, which has since logged 1,080,000 car finance complaint letters through its free car finance reclaim tool.