“Firms who expect the Barclays hearing to result in this issue going away may be disappointed and left trying to catch up on a number of critical risks.” Gary Maude, Director of Advisory Practice, TCC Group

Background

It’s been widely reported that the FCA is conducting a review into whether motor finance customers were overcharged due to the widespread use of discretionary commission arrangements (DCA) in the motor finance industry.

The regulator’s next steps are unlikely to be announced until May 2025 with ‘any’ additional work – for example a past business review (PBR) – commencing in the fourth quarter of 2025.

Some firms have taken this decision as a much-welcomed pause as they await further direction and consider the Barclays challenge to a Financial Ombudsman Service (FOS) decision* as integral to the potential for ‘good news’ on the outcome of the FCA’s decisions.

However, there’s another school of thought that the FOS decisions in the Barclays scenario are part of wider FCA thinking on its own decision to pursue firms; that the FCA awaits the outcome of the Barclays challenge to factor in any additional relevant information – and that PBR is inevitable.

What should firms do?

This may be the time to undertake the planning needed for what may be an inevitable outcome such as a large-scale PBR.

1. Contingent liabilities

Plan your contingent liabilities. The total compensation bill may not be known until late 2025, with many firms having already made provisions in the millions to cover potential redress.

2. Manage your complaints

Firms should continue to put existing and new complaints on hold pending confirmation of the details of any scheme. As previously clarified, the FCA has further extended the deadline for firms to respond to complaints until the 4th December 2025 at the earliest. Similarly, the usual deadline for referring a complaint to the FOS is to be extended.

3. Financial resources

Firms should continue to comply with the specific expectations set out in the FCA’s Dear CEO letter of 12 April 2024 in respect of the adequacy of their financial resources, the accuracy of their financial statements and regulatory reporting – as well obligations to make appropriate disclosures to stakeholders.

4. Establish accurate records

Firms should be taking steps to secure historic records in readiness for the implementation of a scheme.

Our experience is that PBRs often end up making payment of redress because it’s unclear if good advice has been given rather than evidence of poor advice.

Now’s the time to ensure there is a comprehensive record of dialogue and decisions with the relevant lender on a product-by-product basis.

It’s worth noting that the FCA may have a strict timetable which is unforgiving to the typical time taken to prepare sufficient records. The more preparation that can be done in advance, the better placed firms will be to comply.

Summary

There is a material level of probability that the FCA’s decision to postpone its decision on next steps will allow it to factor in the outcome of this hearing, as well as a number of outstanding Court of Appeal judgments.

It is expected that the regulator will publish a consultation paper in spring next year to gauge views on the details of a proposed redress scheme.

*Barclays’ judicial review

In 2024, Barclays applied to commence judicial review proceedings in respect of a decision by the FOS to uphold a particular complaint relating to DCAs.

In that case, a customer made a complaint to the FOS in respect of the commission arrangements that applied to the purchase of a car in November 2018.

Barclays had argued that it had complied with the legal and regulatory obligations that applied at the relevant time and that the customer had not been treated unfairly when all the circumstances of the transaction were taken into account.

However, the FCA found that:

• The discretionary commission model created an inherent conflict between the interests of the broker and the interests of the customer
• Barclays acted contrary to FCA principles and guidance
• It was likely that a court would conclude that the relationship between Barclays and the customer was unfair to her under s.140A of the Consumer Credit Act 1974.

The FCA are likely to also highlight the underlying principle to treat the customer fairly and be unsympathetic to an argument that depends on ‘no rules being broken’.

It’s important to ensure your business maintains detailed records of discussions and decisions made for motor finance customers. TCC’s team of experts are currently assisting firms to secure historical records for ongoing compliance. Reach out today to discover how we can support your firm.