A recent article reported by The Guardian has raised concerns that some motor finance lenders are routinely deleting data after 6 years, which means that details of some vehicle buyers who are due compensation, as a result of the undisclosed commissions scandal, may lose out.
Can Lenders Do This?
The simple answer is yes, but as a rule they should not be doing this for the following reasons:
· In January 2024, the Financial Conduct Authority (FCA) launched an investigation into motor finance undisclosed commissions and at the same time ordered lenders to stop deleting relevant records / data.
· It is also the case that historical complaints / claims against motor finance lenders due to undisclosed commissions have existed since at least January 2021, when the FCA banned discretionary commission arrangements (DCA). Many of these cases have resulted in a variety of civil court judgments and decisions from the Financial Ombudsman Service (FOS).
· There are rules within the Civil Procedure Rules (Part 31) which require parties to maintain / preserve documents which might be relevant to a claim. Basically, as soon as potential litigation is contemplated, a prospective party has duty to preserve documents.
Based upon this, most lenders should have already paused /suspended their 6-year data / record destruction policies until the final outcome of FCA investigation is known and perhaps more importantly the outcome of the Supreme Court Appeal in Johnson, Wrench & Hopcraft v FirstRand Bank Ltd & Close Brothers Ltd is known, which is due to be delivered by the end of July 2025.
Has anything like this happened in the past?
Yes - the FCA provided guidance on how financial firms should handle Payment Protection Insurance (PPI) cases, where compensation was due but relevant records have been destroyed.
FCA Guidance on Handling PPI Cases with Destroyed Records
In its Thematic Review TR14/14 – Redress for Payment Protection Insurance (PPI) Mis-Sales FCA- TR14/14, the FCA emphasised that firms must not use the lack of records as a reason to deny compensation if there is a reasonable probability that PPI was sold and that the consumer may have suffered detriment.
The FCA required firms to take a "reconstructive approach" in favour of the customer, making reasonable assumptions in favour of the consumer and reconstructing key details (e.g. PPI premiums, duration, interest etc) based on typical data from similar cases or other customer records from the same time period. If any doubt existed, it should be resolved in the consumer’s favour.
Summary
To summarise, despite the concerns raised about destroyed records stopping or delaying compensation, our expectations are that:
· most responsible motor finance lenders will have not destroyed their records, in compliance with both the FCA’s order the CPR court rules, to enable compensation to be assessed and paid where it is due.
· where a firm’s records have been destroyed, the FCA will in due course instruct the firm to still handle undisclosed motor finance commission complaints by reconstructing key details in favour of the consumer, making reasonable assumptions and ensuring that any doubt is resolved in the consumer’s favour.