The UK’s car finance industry is bracing for a potential reckoning as the City watchdog imposes a strict deadline for lenders to address a surge in customer complaints over potentially mis-sold loans. With billions in compensation on the line, the Financial Conduct Authority (FCA) has given finance firms until December 4, 2025 to provide final responses to borrowers questioning the fairness and transparency of their motor finance agreements.
The looming deadline comes in the wake of a pivotal Court of Appeal ruling in October, which found it unlawful for lenders to have paid undisclosed commissions to car dealers without obtaining informed consent from customers. The landmark decision has opened the floodgates for claims, with some industry observers warning the scandal could ultimately rival the £50bn bill for Payment Protection Insurance (PPI) mis-selling.
Rising Tide of Complaints
Motor finance has boomed in popularity in recent years, with over 2 million Britons taking out car loans annually. However, the Court of Appeal judgment has cast a harsh spotlight on past industry practices, particularly around Discretionary Commission Arrangements (DCAs) that allowed dealers to inflate interest rates for higher commissions.
Lenders have subsequently been inundated with queries and claims from concerned customers, often aided by claims management firms eager to capitalize on a new scandal. Recognizing the severity of the situation, the FCA has opted to provide finance companies breathing room to investigate and address complaints in an orderly manner.
One-Year Countdown
Under the FCA’s framework, lenders now have until December 4, 2025 to issue final responses to complaints regarding non-DCA agreements. This aligns with an existing deadline for DCA-related grievances. The extended timeline aims to prevent a chaotic and inconsistent resolution process that could undermine consumer outcomes.
The watchdog stressed that while lenders await an upcoming Supreme Court appeal hearing on the matter, they must still adhere to the law as it currently stands when arranging new motor finance contracts.
Supreme Showdown
In a last-ditch effort to overturn the Court of Appeal’s bombshell ruling, two major car finance players – Close Brothers and FirstRand’s MotoNovo division – have secured permission to take their case to the Supreme Court. A hearing is expected by April 16, 2025, setting the stage for a definitive legal battle that could have far-reaching implications for the industry.
The FCA has pledged to intervene in the proceedings to offer its expertise to the Supreme Court justices. However, it has cautioned that regardless of the eventual outcome, firms must continue to treat customers fairly and comply with all existing regulations in the interim.
Echoes of PPI
The specter of the PPI scandal, which cost UK banks a staggering £50bn in customer restitution, looms large over the unfolding car finance drama. The FCA’s top legal official has already warned that vehicle financing mis-selling has the potential to match PPI’s scale and impact.
- Over 2 million car finance agreements are inked annually in the UK
- Court of Appeal ruled against undisclosed commissions in October
- Supreme Court appeal hearing set for April 2025 at the latest
As the December 2025 deadline approaches, the pressure is on for lenders to proactively address customer concerns and rectify any past missteps. The road ahead is likely to be bumpy, with the Supreme Court battle and potential billion-pound compensation costs casting long shadows. However, the FCA’s intervention aims to ensure an equitable resolution for consumers and restore trust in this vital financing sector.
For now, all eyes are on the industry’s response and the impending legal showdown that could make or break the case for sweeping reform. In an era of heightened scrutiny on corporate conduct, the car finance scandal serves as a stark reminder of the importance of transparency, fairness, and robust regulatory oversight in protecting the public interest.
