Market News

By Jenny Surane

(Bloomberg) -- The UK’s Financial Conduct Authority is considering giving lenders more time to respond to customers complaints regarding fixed commissions on their auto loans as it weighs expanding a monthslong probe into the matter. 

The moves come as investors are closely watching a pair of market-moving lawsuits involving the lenders Close Brothers Group Plc and South Africa-based FirstRand Ltd. Both have said they would appeal after losing their cases last month. 

The FCA’s probe has centered on a practice known as discretionary commission arrangements, which the agency banned in 2021. Before that, car dealers could often earn thousands of pounds for themselves, and the bank, by pushing up the interest rate they offered buyers using the practice.

But the recent court cases also touched on non-discretionary commission arrangements, which is a practice where the commission offered to a broker is not tied to the interest rate charged to a customer. The FCA is now considering whether to expand the scope of its own probe given the court judgment was further reaching. 

The watchdog on Thursday asked for feedback on two proposals — one would give lenders until the end of May to respond to complaints regarding non-discretionary commission arrangements and another would give them until Dec. 4, 2025, according to a statement. The December date would align with the agency’s current rules for lenders dealing with discretionary commission complaints. 

“We want to make sure that consumers who are owed money get it in an orderly way, and that the motor finance market continues to provide competitive deals for the millions of people that rely on it,” Nikhil Rathi, chief executive of the FCA said in the statement. 

The FCA reminded lenders to consider whether they would need to make any financial provisions regarding the matter. 

Lloyds Banking Group Plc, the biggest provider of car finance, has already set aside £450 million ($569 million) to pay for possible compensation and other costs linked to the watchdog’s probe, while Close Brothers, where one-fifth of the loan book is dedicated to motor finance, said separately on Thursday that an “accounting assessment in relation to these matters remains under review.”

Earlier this week, Moody’s Corp. analysts said the total cost for the inudstry could ultimately reach £30 billion.