FCA consults on motor finance redress scheme

Transcript

Tessa Norman: The FCA has launched its long-awaited consultation paper on an industry-wide redress scheme for motor finance customers. The scheme is set to compensate customers who were treated unfairly due to the inadequate disclosure of commission and contractual ties between lenders and brokers.

The FCA estimates that 14.2 million agreements will be considered unfair under the scheme and the scheme is set to cost the industry an estimated £11bn, that's made up of £8.2bn in compensation and an estimated £2.8bn in implementation costs, but the FCA has said that those implementation costs may possibly come down depending on the extent to which lenders are able to use automation in how they implement the scheme.

I wanted to share some reflections on some of the key takeaways from the consultation paper. The first is that the time scales do look really quite challenging. So the FCA has been clear that it wants to resolve this issue as quickly as possible in the interest of all market participants and that has meant that it has engaged extensively with both industry and consumer groups ahead of the consultation. Therefore the consultation period is shorter than normal; it's around six weeks. And it also means that the FCA's got an ambitious timeframe for then confirming and implementing the scheme. So it's said that the policy statement will be issued in early 2026 and that the scheme will go live at the same time, and that's important because a number of the deadlines that firms will have to comply with, for example contacting customers within a certain time frame, those will start to run from the start date of the scheme. So what that means in practice for firms is that there's a number of actions that they really need to take now rather than waiting for the outcome of the consultation. Importantly, the FCA issued a Dear CEO letter for lenders and brokers alongside the consultation, which really emphasised that point and set out a number of areas where firms need to take action now to start preparing.

Firms clearly are going to need to build their operational readiness to deliver the scheme; that's going to be a significant exercise with a number of considerations. One consideration that I would particularly draw out is the importance of establishing clear governance and assurance structures from the outset.

That will likely help to minimise the risk of rework or challenge once the scheme is live and the FCA interestingly proposes that lenders appoint a suitable SMF who will have overall responsibility for oversight of delivery and compliance with the scheme rules for that firm.

The other point that I think is worth highlighting at this stage is that gaps in records, particularly for older agreements, as the scheme will date back to April 2007, are going to be a significant challenge for firms. And the FCA does recognise the challenges inherent in this, but it has made very clear that it expects firms to find a way to fill those gaps. So it's a really important area for firms to start work on now, in terms of assessing the completeness and accuracy of their own internal data and records, but also beginning early engagement with third parties such as brokers and credit reference agencies to fill the gaps.

I think it's clear from the consultation paper that there's going to be a lot of work to do and I think there's some clear no-regret actions that firms can start to take now.