Since the 2021 FCA rule changes regarding sales commissions, one of the more common issues in the Motor Industry has been the extremely high number of solicitors and claims management firms seeking to prosecute civil claims for return of commissions earned during the sale of vehicle finance.
In a series of previous articles, we detailed the arguments/issues involved and provided template responses for the most common types of these claims. We are now starting to see a different tack being taken, with an escalation in the number of complaints being taken to the Financial Ombudsman’s Service. Many of you will be aware that because of the surge of complaints the FCA have used powers under s166 of the Financial Services and Markets Act 2000 to instigate a review of sales of historical motor finance commission.
On Tuesday 06 February Martin Lewis produced an article on the issue for his programme on ITV explaining the situation surrounding Discretionary Commission Claims and detailed the options available to buyers regarding the possible miss-selling of vehicles.
Although the programme made clear that buyers’ complaints should be directed to lenders it also stated that where customers may have mislaid relevant paperwork, they might enter a Subject Access Request (SAR) with relevant dealers, and we have subsequently noticed an increase in enquiries from Clients seeking clarification and guidance regarding the correct response to these requests.
Responding to Customer correspondence and requests.
It is important that your employees are aware of the issues and are clearly informed how such correspondence is handled. We would advise that any correspondence received is referred to your risk and compliance team/DPO and for them to process it in the usual way.
It seems this is a request for information/potential complaint which is truly intended for the lender. We would therefore suggest that you advise the customer that their complaint regarding discretionary commission be directed to the lender and they should therefore contact them. You would need to include the complaint address for the customer’s finance company. You may want to liaise with the finance company involved as well to see how they are tackling such requests.
Subject Access Requests
You will need to be careful where the correspondence includes a clear request for the disclosure of documentation.
If it is unclear from the correspondence whether the customer is making a subject access request, you are entitled to seek clarification from them. Indeed, where you receive a subject access request by email, we would advise as a minimum that you seek proof of identity before providing any personal data.
How long do I have to respond?
You will have a calendar month from when you have received sufficient detail to respond to the request. Where you have a legitimate request for clarification or proof of identity this calendar month will run from receipt of the requested information.
If the period ends on a Saturday, Sunday, or bank holiday Monday the period will end on the next working day.
What do I have to provide?
Just because a customer has requested further information under a subject access request, this does not mean they are entitled to it.
A subject access request will entitle a customer to confirmation as to what personal data is held, how it is processed, and a copy of any personal data held. A customer is not entitled to documents that contain no personal data or are legally privileged.
Documents customers are likely to be entitled to under a subject access request will include:
- Copies of any finance proposals submitted.
- Copies of any finance agreements held.
- Copies of any sales documentation that includes their personal data such as name address etc.
We would also advise that members should consider including some standard sales documents such as any standard disclosure documents that may not include personal data. Any documents that deal with any limitations on the finance advice and assistance provided, limitations on your independence and details of commission are central to the arguments on whether the customer was misadvised and whether you have breached CONC.
Documents customers are unlikely to be entitled to under a subject access request will include:
- Confirmation as to whether any specific agreement included commission (unless you hold accounting data specifically referring to the customer).
- Commission arrangements between you and the finance company (unless the documents expressly refer to the customer).
- Communications between you, your employees and your finance house that do not include any personal details of the customer.
- Legally privileged correspondence.
Whilst not disclosable under a subject access requested, it should be noted that all the documents above (except Legally privileged correspondence) would likely be disclosable in any legal proceedings, including pre-action.
If you do receive a request for a document that contains limited personal data but also information that you do not believe is personal data, we would advise that you confirm to the subject that you hold the document, confirm the personal data contained and either withhold the document or redact any information that is not personal to the subject (depending on how much). We would also advise that you set aside a full set of the original documents so that this can be provided upon request to either the Information Commissioners Office or a court.
Nothing within the Martin Lewis Programme is new. The risk of the discretionary commission model was first identified by the FCA in their report 03/2018. This prompted a full year of investigation and consideration. Whilst the FCA ultimately banned discretionary commission from 28 January 2021 it stopped short of declaring that such practices were automatically unfair.
To be clear; some areas of the finance industry have abused discretionary models of commission to the detriment of consumers. It is our opinion that the motor industry as a rule is not one of them. We are proud to say that to date we have argued this point in front of a number of courts over the last few years and at least where we have been involved, these agreements have succeeded.
There remains however a great deal of uncertainty over the issue, and despite over two years of legal argument we are still unaware of any precedent from a higher court that settles this matter once and for all. The FCA review should provide clarification with regards complaints and how these should be handled, and you can rest assured that both MILS and the RMI will continue to advocate strongly on behalf of the motor industry.
Please remember that this advice is general in nature. As an RMI member you have full access to the RMI Legal advice line, as well as a number of industry experts. Should you find yourself in the situation above, please do not hesitate to contact us at any stage for advice and assistance.
Motor Industry Legal Services
Motor Industry Legal Services (MILS Legal Ltd) provides fully comprehensive legal advice and representation to UK motor retailers for one annual fee. It is the only regulated law firm in the UK which specialises in motor law and motor trade law. MILS currently advises over 1,000 individual businesses within the sector as well as the Retail Motor Industry Federation (RMI) and its members.