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To the relief of firms, the FCA decided not to introduce a private right of action (PROA) for breaches of the Consumer Duty. A PROA would have allowed customers to bring claims against firms directly for breaches of the Consumer Duty and could have led to an overly risk-averse approach to implementation. It is important to note the FCA has left introducing a PROA in the future on the table.
At Automotive Management Live 2022, the IMDA Panel discussed that consumers are becoming increasingly aware of their rights. This is not a bad thing but, having acted for motor retailers defending claims brought in respect of commission disclosure following the FCA’s 2019 motor finance sector review, it isn’t a stretch to imagine a PROA leading to claims management companies advertising: “You could claim compensation if you didn’t achieve a good outcome”. This would be a mischaracterisation of the Consumer Duty – but would not be the first time the motor industry has experienced unmeritorious litigation brought on the basis of a misapplication of legal principles.
Despite no immediate introduction of a PROA, customers can still bring FOS complaints. One consultation response to the Consumer Duty stated: “A new surge of upheld complaints would be the ultimate test of the success or failure of implementation of the Duty.”1 Consultation responses also expressed concerns that FOS could interpret the Consumer Duty differently to the FCA. In response and in its recent webinars, the FCA has tried to assuage these fears. The issue is that, despite the 121-page non-Handbook Financial Guidance, the FCA left significant room for interpretation in the rules. The cross-cutting rules are broadly drafted and the four outcomes impose an extensive set of proactive obligations on firms. For example, the FCA’s definition of “good faith” includes not just acting in good faith in the normal sense but also “acting consistently with the reasonable expectations of retail customers”, which is a wider concept.
A surge of new complaints would result in greater pressure on compliance teams and more time and resources being diverted from other current pressures and opportunities, such as the EV revolution, agency models and the cost-of-living crisis. The cost-of-living crisis will have an impact on Consumer Duty enforcement. The FCA is already closely scrutinising consumer credit and insurance firms (as shown by their recent ‘Dear CEO’ letters).
Perhaps the most significant change in the regime is that it provides the FCA with a clearer route to enforcement. Although no new rules carry a PROA, they are all enforceable through the range of powers available to FCA, including section 166 reviews, requirements/restrictions on firms, public censure, financial penalties and the power to require firms to pay compensation.
With firms being held to a higher standard, the Consumer Duty could open more avenues for customers to find fault with the way they have been treated. With the headline of firms having to deliver “good outcomes”, the automotive sector should prepare for customers complaining that they “didn’t get a good outcome”.
Adam Edwards leads the Financial Services Regulation team at Freeths and advises clients across the financial services sector. Adam’s clients include lenders, credit brokers, insurers and insurance brokers, including a number of clients in the automotive sector, from smaller independent dealers to large national franchises. Adam advises on the full range of automotive financial services issues, from ongoing advice on regulatory documentation and compliance issues to conducting financial services litigation and advising on claims, FCA enforcement action and FOS complaints. Adam has recently provided training to clients in the automotive sector on the Senior Managers and Certification Regime and has experience advising firms on compliance issues and FCA enforcement action relating to firms’ senior managers, as well as leading Freeths’ advice to motor sector clients on responding to claims and complaints arising from the FCA’s review of the motor finance sector in 2019.
Daniel Meyer is an Associate in the Financial Services Regulation team at Freeths LLP and specialises in advising Freeths’ financial services clients on a wide range of issues, with a particular focus on consumer finance and, in particular, the motor finance and motor insurance industry. Daniel regularly advises clients across the automotive industry on a range of financial services work, including on designing and implementing regulatory processes, drafting a wide range of regulatory documentation, conducting financial services litigation and responding to FOS complaints, and representing firms and individuals facing regulatory enforcement action. Daniel has recently assisted motor dealers with streamlining sales and regulatory processes, drafting key consumer finance and insurance broking documentation, advising on motor dealer commission disclosure claims, and acting for motor dealers facing mis-selling claims and complaints.