The FCA’s recent announcement of a full-scale review into complaints handling within the motor finance sector could be the first sign of a significant redress programme on the horizon for brokers and lenders – on a similar scale to the PPI scandal.

Here, TCC’s Director of Advisory Practice, Gary Maude, outlines the critical steps for motor finance firms.

The FCA’s review work is being carried out due to concerns over discretionary commission arrangements (DCAs) which were banned three years ago as they were said to give dealers ‘an incentive to raise customers’ finance costs’.

gary maude head of advisory practice

Gary Maude, TCC

If the regulator rules that a full-scale compensation scheme is necessary, it could impact any customer who purchased a car, van or motorbike between 2007 and 2021 – some figures suggest as many as 40% of all sales made during this timeframe could be affected – resulting in potentially millions of claimants.

We won’t find out until Q3 of this year whether the FCA will go ahead with remediation initiative, but both past form and views from across the industry suggest it’s more likely than not. It’s therefore critical that firms don’t underestimate the scale of work this could involve – and do what they can now to ease the burden on their time, budget and resource when the rules are announced.

So, what should firms prioritise when preparing for the FCA’s next steps?


1# – Assess your exposure

First and foremost, you’ll need to work out how much of an impact any compensation initiative is likely to have on your business. Simply put, what proportion of past sales included DCAs, and what was the monetary value of these sales?

Firms should already have standard provisions and procedures in place to account for the impact of remediation. However, should a redress scheme goes ahead, it could lead to billions of pounds of overcharged interest being paid back to millions of customers.

Whilst the initial cases were focused on the big players in the credit space, it’s inevitable that the FCA’s work will affect dealerships and smaller businesses as well. And so, it goes without saying firms can’t afford to assume they won’t be affected or put off doing the maths on exactly where they stand.

You’ll also want to re-examine your complaints handling procedure. The FCA’s initial announcement raised concerns that the vast majority of DCA-related cases were found to have been turned down by firms – so you’ll need to think about how robustly you can defend your position on any historical complaints you’ve rejected and why.


#2 – Get your resourcing needs handled early

Though we’re not due to hear full details of the FCA’s next steps until September, you’ll need to ensure you’re prepared to hit the ground running when the decision is made public. And that means securing the right staff, with the right skills and experience, to get the job done right the first time.

This challenge is compacted by the fact that, just weeks into 2024, we’re already seeing instances of firms struggling to fill contractor positions due to sheer demand and lack of available resource on the market.

The sooner you can start searching for qualified candidates to put on retainer – for example, complaints handlers experienced in dealing with this kind of advice – the quicker and more confidently you’ll be able to respond to the coming directives.


#3 – Bring in lessons from FCA messaging

The regulatory scrutiny surrounding motor finance – and specifically the apparent mismatch between consumer and firm perspectives on the propriety of DCAs – ties into the wider Consumer Duty themes and work around fair value and consumer understanding. You’ll therefore need to view the next steps within the context of fostering a customer-centric strategy that empowers individuals to meet their own unique financial goals through clear communication, transparency and a proactive approach.

It’s also worth noting that the DCA issue is unlikely to be viewed by the regulator – or complainants – in isolation, so pay attention to any adjacent issues that could also affect your firm. For instance, the regulator has halted sales of Guaranteed Asset Protection (GAP) insurance pending a review into its value to consumers, citing concerns that only 6% of the amount being paid by customers is paid out in claims.

Indeed, some claims management firms are already gearing up to ‘weaponise’ these issues with adverts and calculators inviting the public to see if they’re eligible for a pay-out – which could lead to a snowballing of claims in other areas.


Why not just wait?

Consequently, now’s the time to be asking yourself the tough questions: Are our past and, even more importantly, current activities clean? And are there any other areas of our business that could come under scrutiny in future? What is the size of the potential problem?

While this can seem like a daunting proposition and complex issue for many firms, taking proactive steps and seeking an expert, impartial, third-party opinion can help point you in the right direction and get ahead of the curve with any future challenges and large-scale redress initiatives.


Gary Maude is Director of Advisory Practice at TCC Group.


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