Auto Finance Discretionary Commission Crisis

Legal challenges delay FOS decisions

James Dipple-JohnstoneDeputy Chief Ombudsman, FOS

The Financial Services Ombudsman’s (FOS) findings on car finance mis-selling claims are currently on hold, pending the outcome of legal challenges brought by a number of lenders seeking to overturn previous rulings. The delay leaves lenders, some of whom have set aside contingency funds to meet any compensation claims, in limbo.

FOS data also shows that while most of the car finance fees and commission cases are brought by third parties, the success rate is very low, with consumers who bring their own case six times as likely to see their complaint upheld.

In its May update, FOS said it recognised that a string of legal decisions currently in the pipeline could have an impact on its approach to complaints that include similar issues.

March saw three court cases relating to motor finance commission payments granted permission to go to the Court of Appeal, which is expected to consider how the law relating to secret and half-disclosed commission might apply.

In April, Clydesdale Financial Services – trading as Barclays Partner Finance – started judicial review proceedings in relation to one of the two FOS decisions which sparked the current Financial Conduct Authority (FCA) review of motor finance and discretionary commission arrangements. That judicial review hearing has also not yet taken place.

In the latest FOS update in May, Deputy Chief Ombudsman, James Dipple-Johnstone, said: “It is disappointing that ongoing legal proceedings around motor finance commission have impacted our ability to issue final decisions in some of these cases.

“However, we’re determined to progress consumers’ complaints as far as we can, and firms should continue to investigate and respond to complaints promptly.”

Professional representatives

FOS says it is currently investigating around 20,000 complaints related to car finance commission, up from around 10,000 at the beginning of the year. Vehicle-related complaints were responsible 25% of all the cases received in the second quarter of the 2023 financial year.

The complaints data shows that many car finance agreement claims are being submitted by professional representatives, who account for more than 90% of cases related to unaffordable or irresponsible lending, and 70% of complaints about fees, charges and commission.

FOS said the uphold rate for these motor finance complaints brought by third parties was particularly low at just 8%, compared to a 42% uphold rate when cases in the same category were brought directly by consumers.

This rate is also much lower than the 35% uphold rate for general complaints brought by professional representatives across all categories during the same time period.

From 1st July to 30th September 2023, on the consumer credit side, FOS received 4,622 complaints about hire purchase (motor) and 1,569 complaints about conditional sale (motor). On the insurance side there were 4,036 complaints about car/motorcycle insurance, and FOS reported these were the highest complaint levels for all three individual products in over five years.

AFC’s UK summer conference on 6th June at etc venues, County Hall, London features a dedicated stream analysing the FOS and FCA reviews and examining current regulatory challenges. For more details, visit the event website at