FCA Gives Auto Lenders More Time to Manage Customer Complaints

The U.K.’s financial watchdog is giving auto financing companies more time to deal with customer complaints.

The Financial Conduct Authority (FCA) announced this decision Wednesday (Nov. 13) in the wake of a recent court ruling that forbids dealers from getting a commission from auto lenders without the customer’s consent.

The FCA says car finance companies are “likely to receive a high volume of complaints” following the Oct. 25 ruling, which banks are expected to appeal.

The authority plans to write to the U.K. Supreme Court “asking it to decide quickly whether it will give permission to appeal and, if it does, to consider it as soon as possible, given the potential impact of any judgment on the market and the consumers who rely on it.”

In addition, the FCA will consider offering its expertise in further cases and asked car financiers to look at “whether they should make any financial provisions as complaints need to be handled in line with the law.”

The FCA announced it was reviewing the commissions earlier this year. As the Financial Times reported at the time, close to 90% of new cars sold in the U.K. — during an era when interest rates were low and credit was “plentiful” — were made via financing deals.

In those deals, dealerships could earn thousands for themselves and for banks by driving up interest rates offered to customers, a practice known as “discretionary commission arrangements.”

The FCA banned this practice in 2021, but began reviewing older loans — as far back as 2007 — following a deluge of consumer complaints.

Lloyds, Great Britain’s largest auto financing lender, set aside $570 million earlier this year for possible compensation and other costs connected to the review.

In other auto financing news, the CEO of one of America’s biggest car loan providers warned last month that the company’s next few quarters will be “choppy.”

Speaking during a third-quarter earnings presentation, Ally Financial CEO Michael Rhodes said the bank had imposed tighter standards by establishing tighter verification requirements for proving borrowers’ income and employment.

“Our origination trends reflect a deliberate strategy to be increasingly selective in our underwriting with a focus on prioritizing risk-adjusted returns over origination volume,” Rhodes told analysts during an earnings call.

“We have moved up significantly in terms of borrower credit quality since early 2023 which will be a tailwind to delinquency and frequency over time.”