Car finance companies are facing “huge operational pressure” as they deal with the threat of compensation payouts within months, according to experts.
Zoe Morton, associate director at consulting firm RSM UK warned the impact on firms is “vast” with the Financial Conduct Authority’s (FCA) investigation looming over providers.
The expert warned firms were likely to receive an “influx of complaints” from worried consumers, including those who did not have a discretionary commission arrangement (DCA).
Interest in the topic has soared over the past couple of weeks after motorists were alerted to the investigation by motor finance guru Martin Lewis.
Zoe explained: “The potential impact of the FCA’s review into discretionary commission arrangements is vast, much like Payment Protection Insurance (PPI) was, so it’s no surprise the FCA has put complaints on hold for now.
“While motor finance providers and consumers are effectively in limbo until September, companies are still likely to receive an influx of complaints, even those that have never offered DCAs. This places them under huge operational pressure.”
Motor finance firms may have unfairly charged motorists commission charges on their finance deals in a bid to bring in extra revenue.
The FCA launched an investigation into potential “widespread misconduct” in the industry last month.
The probe was started after the Financial Ombudsman sided with complainants who had raised issues with their lender.
Martin Lewis has since claimed “millions” could be owed payouts on a scale not seen since Payment Protection Insurance (PPI) sums were awarded.
He has since claimed around 40 percent of complaints could be valid with each motorist likely to receive over £1,000 each.
As of last week, he admitted over a quarter of a million complaint letters had been sent through his MoneySavingExpert website.
Zoe added: “As part of the recent new Consumer Duty rules, financial providers must consider the price and value of products and services they are offering to consumers.
“As many consumers are unaware that brokers were allowed to set varying rates of commission, it’s likely the historic approach to DCAs fails to meet the requirements of the Consumer Duty.
“The upcoming deadline for ‘closed book’ products and services to meet the Consumer Duty requirements in July 2024 will prompt firms to ensure they comply with their obligation to be transparent about the price and value of products.”
