With the FCA announcing in January that it will investigate the historical use of discretionary commission arrangements, it’s crucial that you know what this could mean for your business, and what you need to be doing to remain compliant with the new rules.
Let’s explore this further and find out what you need to know.
A recap of the FCA review
2020
- FCA announces in its Policy Statement PS20/8 that it would be banning commission models that motor finance brokers used to raise the costs incurred by consumers, following a review conducted in 2019.
- Extensive research finds firms were having a negative impact on consumer affordability and failing to give customers timely and relevant information.
2021
- FCA exercises its powers under s166 of the Financial Services and Markets Act 2000 and implements a ban on discretionary commission arrangements. This requires firms to review their practices.
- If the FCA find widespread misconduct through the sector, they will intervene and treat resolution for customers affected, a priority.
2024
- FCA paused the 8-week deadline for motor finance firms to provide a final response and proposed solution to complaints on the 11th January 2024. This is to mitigate inconsistent and unreasonable outcomes for customers and prevent knock-on effects to the market in the meantime.
- The pause applies to complaints where a DCA will last for 37 weeks and were received on or after 17th November 2023 and on or before 25th September 2024.
- During the pause, consumers will also have up to 15 months to refer complaints to the Financial Ombudsman, rather than the typical 6-month period.
What you need to do
Motor finance firms that are impacted by these changes must comply with the rules in Appendix 5 of the Dispute Resolution: Complaints Sourcebook relevant to your particular business. These include:
1. Keeping your customers informed
Leaving your customers out of the loop is a sure way to find yourself running into trouble with the FCA. And under the new plans and the Consumer Duty that it has implemented, it’s increasingly crucial to keep customers up to date with their queries or complaints progress. In line with the Consumer Duty, queries in relation to whether a customer’s motor finance agreements included a DCA need to be responded to be promptly to give them opportunity to make a complaint if they so wish.
Regularly updating support information on your website on how you handle complaints, and providing a timeline for how long it may take for them to hear back is crucial.
2. Flagging the DCA complaints pause to complainants
While the pause is in motion for DCA complaints received between 17th November 2023 and 25th September 2024, you won’t be required to make and send a final response to complainants for 37 weeks. However, you will still need to send a written acknowledgement which explains the pause and its time limits.
If you’ve already sent a written acknowledgement of a DCA complaint, you need to promptly write to the complainant again, informing them of the pause, the reasons for it, and the time limits associated with it. And, for any cases where it’s clear that the DCA isn’t a relevant consideration, a final response will need to be provided as normal i.e., within 8 weeks.
It’s also key that you let customers who received a final response to a DCA complaint between 12th July 2023 and 10th January 2024 know that they now have 15 months from the date of your final response to refer their complaint to the Ombudsman. This will also apply to those who received, or will receive, a DCA complaint between 11th January 2024 and 20th November 2024.
3. Ensuring your retention records are in order
The FCA is calling for better, more orderly records of your business to be kept, including the services you’ve provided and transactions you’ve completed. These should be retained for as long as they remain relevant to the circumstances in which they were made.
With regards to complaints specifically, lenders and credit brokers are required to keep any records that are, or could be, relevant to the handling of complaints or civil claims related to DCA agreements entered before 28th January 2021. A Where documentation related to complaints are failed to be kept, the FCA still requires the complaint to be fairly investigated. 5. Reimagining your complaints handling
Ultimately, the action the FCA is taking towards complaints within the motor financial service is to improve customer service for all users and keep complaints to a minimum—but more importantly, to ensure any complaints that do come up are handled fairly, quickly, and in a standardised way.
We know that keeping on top of complaints isn’t always easy—particularly if you’re short-staffed or facing a backlog. And we have recently seen an uptick in complaints and claims post-Martin Lewis’ campaign which called for drivers who took out finance deals on cars to log complaints, as these deals may have contained DCAs. But, more crucially, we’ve observed a sharp rise in DSARs driven by a handful of Claims Management Companies (CMCs). These CMCs are preparing for larger-scale remediation programmes which we saw in PPI and packaged bank accounts.
Our award-winning Caresmart complaint management solution has been developed specially to ensure our clients remain compliant. Working alongside your complaints team, its intuitive and visual dashboards will be able to aggregate data from your configured workflows, and help your team to effectively manage complaints, speed up resolutions, enhance customer experience, and keep you compliant with the FCA requirements.
We can also help you by:
- Providing specialist teams to check previous closed complaints reached the right customer outcomes and were concluded appropriately
- Teaching you how to manage CMC/ICO/FOS relationships
- Discussing your plans on how to stand-up complaints operations including timescales, costs and ‘the how’ to avoid unnecessary distraction.
- Creating playbook/scenario planning against planned and unplanned numbers particularly surge
With the FCA’s ban on discretionary commission arrangements and pause on DCA-related complaints currently in motion, your company may find itself up against some novel challenges. But using this time to address the issues with your complaints handling will put you in good stead with the regulator, regardless of their review findings.
For more information on how Worksmart could help you, reach out to our team of experts at info@worksmart.co.uk or book a meeting with our friendly experts.