The FCA  has published complaint handling rules for non-discretionary commission arrangements (“Non-DCA”) under motor finance regulated credit agreements and regulated motor finance consumer hire (lease) agreements.  The new rules come into force on 20 December 2024 and will apply to complaints received on or after 26 October 2024.  As far as possible, the new rules broadly mirror those introduced by the FCA in January and September 2024 for handling discretionary commission arrangement (“DCA”) complaints and includes extending the time firms have to deal with complaints.

Firms given more time to handle Non-DCA complaints

• Under the new Non-DCA complaint handling rules motor finance firms dealing with complaints regarding Non-DCAs will now have until 4 December 2025 to handle complaints and provide a final response to complainants.  The FCA explained that its decision to widen the application of the rules to complaints regarding commissions paid under motor lease agreements was due to the similar risks and implications faced by the motor leasing market to the motor credit market, and that consumers of these two products should be treated in the same way.

High volume of complaints expected following Court of Appeal judgment

• The decision by the FCA follows October’s landmark UK Court of Appeal judgment on motor finance commission in the test case Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd, that car dealers acting as brokers receiving commission from lenders without customers’ informed consent was a breach of duty, opening up the risk of direct liability for lenders.  On 11 December 2024 the UK’s Supreme Court granted permission to FirstRand Bank and Close Brothers to appeal the Court of Appeal’s decision, which is expected to be heard sometime between January and April 2025. The appeal relates to the application of common law, equitable principles and the Consumer Credit Act, rather than the FCA rules, and affects both DCAs and Non-DCAs.
• As a result of the Court of Appeal’s decision, the FCA expects a sharp and significant increase in complaints which will create additional pressure on firms and the Financial Ombudsman, and has indicated that further regulatory intervention, such as a statutory consumer redress scheme or special complaint handling rules and guidance for all motor finance commission complaints may be required. According to the FCA, Non-DCA credit agreements represent around 57% of the 31.7m regulated motor finance agreements brokered on behalf of authorised lenders since 2007, with the rest being DCA agreements, which were banned by the FCA in 2021.   
• The FCA hopes that both the DCA and Non-DCA special complaint handling rules will prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms, the Financial Ombudsman, and the motor finance market, and minimise additional costs firms face on top of any potential redress liabilities and the risk of firm failure. 

Court upholds Financial Ombudsman’s findings on DCA complaint

• In another significant decision for the FCA’s DCA review (which commenced in January 2024), on 17 December 2024, the High Court found in favour of the Financial Ombudsman Service in a review of its decision to uphold a complaint in relation to a DCA in a motor finance agreement, with the Court dismissing all 3 grounds of appeal brought by Clydesdale Financial Services trading as Barclays Partner Finance (“BPF”) .
• The Judge found that the Financial Ombudsman had interpreted the FCA rules and the Consumer Credit Act 1974 correctly when deciding that the lender and car dealer involved in this case did not meet the relevant standards in place at the time. The Financial Ombudsman was entitled to find that the dealer and the lender did not adequately disclose their commission arrangements to the borrower and that the relationship between the lender and the borrower was unfair in those circumstances.
• The FCA has welcomed the additional clarity brought by the BPF judgment to consumer complaints involving DCAs, although the decision may be appealed.

What’s next?

• Both the BPF judgment and the Supreme Court hearing deal with important questions highly relevant to the FCA’s review into the payment of commissions in the motor finance market.  The FCA expects to update stakeholders on its next steps in relation to both DCA and Non-DCA complaints in May 2025 although what the FCA can say in May will depend on the progress of the appeal to the Supreme Court and the timing and nature of any decision. 
• Some financial institutions have already made significant provisions relating to motor finance commission complaints.  The impact on the industry is significant although at this stage difficult to quantify-according to the FT, Moody’s estimates that the cost of redress across the industry could be as much as GBP30bn.
• The motor finance industry and the FCA now eagerly await the UK Supreme Court’s decision.

Postscript

• The Supreme Court delivered its landmark judgment in Hopcraft v Close Brothers Limited; Johnson v FirstRand Bank Limited; Wrench v FirstRand Bank Limited [2025] UKSC 33.on 1 August 2025, ruling predominantly in favour of the lenders in respect of the three motor finance test cases.  The judgment clarified that undisclosed car finance commissions are not unlawful under the tort of bribery or equity, as car dealers arranging finance are not fiduciaries. However, particularly high undisclosed commissions may still be challenged under consumer credit legislation.

• Our Structured Finance team consider the Supreme Court decision here.

Future Developments

• The FCA aims to publish its consultation on an industry-wide scheme to compensate motor finance customers who were treated unfairly by early October 2025 and finalise any scheme in time for consumers to receive compensation in 2026.

• The Supreme Court judgment is likely to have an impact on a number of other cases relating to motor finance claims, including:
  • the appeal in  Clydesdale v Financial Ombudsman Service (“FOS”), concerning a judicial review of a decision made by the FOS against Clydesdale trading as Barclays Partner Finance (“BPF), finding BPF had not treated the customer fairly and reasonably by failing to adequately disclose the nature of a DCA;
  • the appeal in Angel v Black Horse, listed for April 2026.  This case involves around 5,800 claimants who have brought claims against lenders under the Consumer Credit Act 1974 in relation to unfair DCAs.

• Market participants will hope that the outcome of these two cases will provide additional guidance on how DCA claims should be dealt with and the extent of any further liability for lenders in relation to historic motor finance arrangements.