FCA inquires into banks' practices after complaints from customers
Britain’s major banks, including Barclays, Lloyds Banking Group, and Santander UK, are grappling with a new challenge as the Financial Conduct Authority (FCA) initiates inquiries into their auto lending practices.
According to a report by Bloomberg, the FCA has reportedly contacted around a dozen banks, seeking information on whether customers were informed about the commission amounts paid to dealerships.
Sources familiar with the matter revealed that around 12 auto finance lenders received orders for Section 166 reviews before Christmas. These reviews compel firms to enlist external experts to examine their practices, producing independent reports for authorities, who may take further action if deemed necessary.
Britain’s biggest banks have a new problem on the horizon: car loans. The Financial Conduct Authority has reached out around a dozen banks about their auto lending practices, sources say. https://t.co/iKUjzR1Oou
— Bloomberg UK (@BloombergUK) January 18, 2024
The regulator’s move follows its recent announcement of an investigation into the sales of car loan products after noting a high number of complaints from customers to motor finance firms, a development that analysts predict could result in a hefty bill of up to £10 billion for the lenders.
The focus of the investigation centres on the practice known as “overage”, where dealers could earn substantial sums by raising interest rates. Many consumers have voiced concerns, alleging they were unaware of lower rate options and how overages functioned.
Test cases handled by the Financial Ombudsman Service have already resulted in refunds, prompting industry experts to speculate on potential compensation for borrowers, while analysts are cautioning that this issue could pose a significant challenge for banks, with the FCA announcement leading to share declines for several.
The FCA has imposed a pause on new complaints until late September, allowing time for a decision on appropriate actions to address the escalating caseload.
Consumers will also have up to 15 months to refer their complaint to the Financial Ombudsman, rather than the usual six months, the regulator said.
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