FOS data shows record number of motor finance complaints

The Financial Ombudsman Service (FOS) has today published its latest quarterly complaints data, revealing some interesting trends in the financial services sector. Most notably, there has been a surge in complaints related to car finance, which have reached a record high. The data (which covers the final quarter of 2024) revealed that the FOS received 18,658 new complaints concerning car loans - a 33% increase from the previous quarter and three times the number from the same period in 2023.

This means that car loans were the most complained about financial product, surpassing credit cards, which has taken the top spot in recent years. The increase should not come as a surprise to the market. Indeed, the rise underscores growing consumer discontent with car financing practices, reminiscent of past financial scandals such as claims relating to payment protection insurance (PPI) and interest-only mortgages.

A pivotal factor contributing to the rise is the controversy surrounding purported secret commissions paid to car dealers by lenders without the customer’s informed consent. The Supreme Court is due to hear an appeal next month from car loan providers challenging a recent Court of Appeal ruling that deemed such undisclosed commissions unlawful. Our previous article discusses that finding. It is estimated that, if the appeal is rejected, billions of pounds will be paid in redress. As we have previously reported, Lloyds Banking Group have already set aside £450m in 2024 to cover operational and legal costs associated with possible motor finance claims. Most other lenders have now also made provisions.

Despite the Financial Conduct Authority (FCA) temporarily pausing the complaints process in this area pending the appeal to the Supreme Court on the matters of Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcroft v Close Brothers [2024], the FOS clearly continues to receive a high number of complaints. It is likely that the number of complaints will only continue to rise.

Other data

Away from motor finance, some other interesting data was revealed.

• The overall number of complaints received by FOS decreased by 7% in the final quarter of 2024, with 68,430 complaints being made. Positive news, but still a large amount of complaints being made.
• Of the 68,430 complaints, 36% were upheld, a slight increase from the previous figures.
• The number of complaints made by professional representatives, such as Claims Management Companies (CMCs), accounted for 47% of overall complaints.
• However, only 26% of complaints referred by CMCs were upheld.

Comment

This data, in our view, clearly supports the FOS’ decision to charge CMCs for making a complaint. Whilst they accounted for 50% of the total complaints made, only a quarter of those complaints were upheld. To phrase it a slightly different way, almost 75% of complaints brought by a CMC were rejected.

In relation to the escalating complaints in the car finance sector, this will carry significant implications for both firms and their professional indemnity insurers:

• A continued increase in complaints should be expected. The consumer awareness of motor finance complaints is only likely to increase further.
• If the Supreme Court upholds the ruling against undisclosed commissions, firms may face substantial compensation liabilities, potentially amounting to billions.
• The situation has already caught the attention of the FCA and it may prompt stricter oversight and potential reforms in commission disclosure practices. Indeed, the FCA have already confirmed they are reviewing the position with the Supreme Court hearing and may seek to make submissions if necessary. Any Supreme Court ruling is likely to influence the FCA’s considerations on whether to implement a consumer redress scheme.
• The number of complaints might begin to erode consumer trust. Firms must proactively address these issues, improve transparency, and engage in effective communication strategies to rebuild their reputation.

The latest FOS data highlights a critical area of concern within the car finance sector. Firms and their insurers must implement clear disclosure practices, as their insurers will likely want to know what steps are being taken to mitigate any exposure.

Related items

• Car finance commissions ruling risks potential flood of compensation claims
• Professions and financial lines brief: latest decisions December 2024