FCA commended for “more proportionate” approach

The Financial Conduct Authority (FCA) update regarding its plans for any motor finance mis-selling redress scheme has been welcomed as a sign the regulator has taken onboard industry feedback to its initial consultation and is committed to improving communications and streamlining the processes for any payments deemed due. 

Ahead of a final decision on any scheme –set to be delivered in late March in an announcement outside market hours – the FCA has said it will no longer require firms to contact customers who have already logged a complaint to ask if they wish to opt out, and firms will be able to use a range of channels for customer contact rather than being required to use recorded delivery.

In addition, there is to be a three-month implementation period once the details of the scheme are known, rising to up to five months for “older agreements”, although these are not defined. Currently the scheme is set to consider complaints dating back to 2007.

The FCA said this decision on implementation, which had been described originally as starting from the date of any policy announcement, acknowledged “the scale and complexity of the scheme” and was “in response to feedback”.

“The likely changes to the scheme were supported by many consumer groups and firms that responded to our consultation. As well as providing a better experience for consumers, the changes would help keep the cost of delivering the scheme proportionate, supporting a well-functioning market for the millions of people that rely on it,” the FCA stated.

“More proportionate”

The Finance & Leasing Association (FLA), which had previously called on the regulator to adopt a “fair, targeted and workable solution”, has given a thumbs up to the changes proposed, which have been released before final decisions on any scheme have been made.

The FLA welcomed the increased communication about the regulator’s plans, which the FCA said was designed “to help firms prepare and ensure consumers get any money owed promptly, we’re setting out some details now on how we intend to streamline the consumer journey and make it smoother for firms to operate.”

 One of the association’s key concerns had been that any proposed scheme should be  “operationally deliverable within a realistic implementation period”.

“However, it also shows a much more proportionate approach to how the scheme could operate in practise. We are pleased that they listened to feedback.

“We hope to see the same proportionate approach applied to the remaining proposals so that the overall scheme, if it goes ahead, would only compensate those customers who actually lost out.”

The FLA has previously flagged concerns that the scheme as envisaged could result in lenders  awarding redress where no unfair relationship arose – a practice that would undermine fairness and damage confidence in the system – and had urged the FCA to adopt an approach that Identifies and compensates only those consumers who suffered an actual loss.

Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), agreed it was positive to see feedback from the many organisations on the consultation (the FCA said it has been working through 1,000 responses) is now being reflected in key areas.

“In particular, the proposed flexibility around implementation timescales – including extended periods of up to five months for older agreements – recognises the operational complexity involved and will help firms deliver fair and accurate outcomes for customers.

“This demonstrates a constructive approach and an openness to working with the sector to get this right,” Robinson stated.

There was also a positive response from Alex Neill, co-founder of Consumer Voice, who  said: ‘It’s a victory for common sense that drivers who have already complained about motor finance will be automatically included in the scheme and receive a prompt offer of compensation,” although Neill cautioned that “allowing lenders more time to process older complaints will only be justified if they play fair and use the extra time to do everything possible to locate the paperwork and contact customers.”

Welcome news

Summing up the sector’s reactions to the FCA update, Wayne Gibbard, Partner at Shoosmiths LLP, observed:

 “In this respect, it should also be well received by consumers and other stakeholders as ensuring consistency and certainty. Ultimately, an implementation period (even a short one) is likely to lead to a speedier and more effectively management overall.

 “Whilst it pleasing to see this early messaging on key operational points, there is still much to review and consider in the context of the proposals. It looks like a busy Easter period ahead for the sector.”

Claims management companies

The one group to register a less positive response to the FCA’s update is the  Claims Management Association, which maintains that “introducing an implementation period that gives lenders yet more time to prepare, despite the fact that many consumers have already waited years for redress after being overcharged.”

The Association also takes issue with the FCA repeating its advice that consumers do not need to use a claims management company (CMC) or law firm to pursue motor finance redress, saying this is “effectively undermining those who exist to help people navigate a complex and intimidating process”, and alleging that “this raises serious questions about balance and impartiality.”

CMCs have been in the FCA’s sights for over a year amid concerns around poor practice by FCA-regulated CMCs. The regulator said over 800 misleading adverts have been removed or amended since January 2024 while it has intervened with five CMCs causing harm. As result two reduced exit fees and four agreed to stop taking on new clients until they can show they comply with FCA rules.

Next steps

The FCA’s final decision on any redress scheme is due later this month. Finance Connect will be providing a webinar addressing the key developments as soon as information is available. Watch this space!