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FCA, FOS: differing approaches to DCA

David Allinson, partner with law firm RPC

The Financial Conduct Authority (FCA) review and the Financial Ombudsman Service (FOS) investigations into consumer claims for compensation regarding potential discretionary commission issues in the motor finance sector could arrive at separate and different outcomes, as the regulators operate under different regimes, according to David Allinson, partner with law firm RPC.

This disparity – and a number of “grey areas” – are likely to increase uncertainty for lenders, who are also awaiting the outcome of Barclays’ decision to ask for a judicial review of the FOS ruling relating to a complaint about broker commission paid by Clydesdale Financial Services (trading as Barclays Partner Finance) over conditional-sale agreement to buy a car in November 2018.

While FOS does not have to suspend the examination of any claims brought to it pending the result of the judicial review, the fact that a challenge has been brought adds to the complexity of the situation.

Allinson pointed out that the FOS decision in the Barclays PF case appears to be “detached from the commercial reality of arranging finance”, since it was acknowledged that the buyer had already been rejected by four lenders, suggesting that she was unlikely to be offered the lowest interest rate then available.

In a second case upheld by FOS and involving Blackhorse Finance, the decision appears to suggest that the broker should

lend at the lowest possible ‘variable’ rate available to them, despite this essentially meaning that they do the work for free (discounting the £152.38 support payment, which would have been refundable if the broker did not meet their sales quota for the year).

Allinson highlights that this runs contrary to comments in the FCA’s consultation on the issue, where the regulator recognised reasonable for commissions for this type of finance to be higher than others, simply by virtue of the fact that the customer profile differs.

“The findings in the two FOS cases do raise the question of what is the loss for the customer here? And if there is no loss, then there is no redress needed,” he pointed out.

Broker as agent

While the FCA review is considering legal liability, it employs different tests to the FOS focus on what is “fair and reasonable” based on the facts of each specific case brought.

Allinson is particularly concerned that nowhere in FOS’s 64-page decision does the ombudsman clarify which party the broker is an agent of, saying that this issue of who ultimately the broker is obligated to have first duty to is at the heart of the issue.

“Worryingly, the FOS decision does not substantially comment on whether they consider the broker to be an agent of the lender or an agent of the client. From a legal perspective, this clearly has ramifications in assessing who the broker is ‘working for’. In the FCA’s consultation paper on motor financing (at page 20) they described the situation as creating a ‘dual principal-agent problem’, however the FOS decisions are notably absent of any legal assessment in this regard,” he noted.

The current situation is complicated by the pending judicial review which, if decided in Barclays’ favour, could see the two FOS decisions which triggered the FCA industry-wide review re-visited.

“One key thing is that I suspect that FOS will argue that without proper disclosure of discretionary commission arrangements, the customer cannot be fully informed. Meanwhile, the FCA review is looking at the issue of discretionary commission in circumstances where the lender was not required at the time to disclose, so the issue is what was adequate information,” Allinson pointed out.

The issues raised by the FCA review, and current developments in the broking community, are among the topics under discussion at the AFC UK Conference Summer 2024 which takes place at etc.venues, County Hall in London on the 6th June 2024.

Visit the AFC UK Conference Summer 2024 website at for more details and to book your tickets at the early bird rate.