FCA redress scheme: what happens next?

The Financial Conduct Authority (FCA) has published the final policy statement for its motor finance redress scheme ending two years of uncertainty over the nature and quantum of any liability. While key details have been modified, substantial operational requirements remain while legal challenges are also on the cards, as early analysis from Finance Connect’s webcast, sponsored by Odessa, shows.

“It’s very clear the FCA has listened to industry concerns and we can see this in the final policy statement: the scheme has been split into two to address concerns around potential legal challenges; additional data points have been added; and there are new aspects including caps on compensation, a de minimis rule, and the exclusion of captives from the scheme where clear ties are demonstrated,” explained Wayne Gibbard, Shoosmiths partner and legal adviser to Finance Connect.

Closed claims

A question from a very large motor dealer participating in the webcast concerns the practical implications for the potentially thousands of cases which have already been subject to Financial Services Ombudsman adjudication and found not to be upheld, but which are now in scope.

Gibbard’s reply was that much will depend on the individua complaint and how it was brought, but he pointed out “there is no second bit of the cherry if compensation has already been paid.”

Legal challenge

A poll of participants found two thirds (66%) believe a legal challenge to the scheme from a lender or group of lenders is a possibility, compared to just 7% who thought claims management companies (CMCs) may seek to bring a case.

“There’s a sense of a more emotional and visceral reaction to the policy statement depending on viewpoint. There are examples of both giving and taking away. However, the majority feeling is that this doesn’t sit well with lender community in particular. The FCA is predicting a 75% uptake which along with a considerably increased customer average entitlement of £829 moves the dial in terms of impact,” Gibbard said.

Depending on the route taken a legal challenge would need to be triggered quickly: the Upper Tribunal process has a 28 day period for application, which expires on 27 April. “Lenders may feel that while the scheme is not perfect, is an alternative going to be any better,” Gibbard argued.

Who is accountable?

The policy statement clarifies the financial impact rests predominately with the lender in the first instance. Complaints are to be brought to lender who has responsibility for redress.

However the lenders may need information from intermediaries on particular files or disclosure documents.

A significant change is that the FCA has made clear individuals are responsible for delivery of the scheme requirements, rather than firms.

“Firms have to indicate in the next two weeks if they plan to use implementation period and identify the individual to take responsibility. There are demands on firms about forecasts – how they intend to treat different communities of customers and how they will set out stall next 18 months. Deviation will require discussion with the FCA supervisory team. These government requirements are very important,” Gibbard underlined.

The audience poll found participants felt it is manufacturers captives who have come out best from the FCA’s revisions to the scheme, cited by 32%. But there will be close scrutiny of the evidence provided to demonstrate that the dealer/lender relationship was full disclosed.

“And remember this will all be embedded via Consumer duty. It will be under constant review to see if it delivers the right information to the customer at the right time,” Gibbard reminded the audience.

“The evidential piece is critical, and being able to demonstrate what happened in a given channel, which may change engagement face-to-face. It will certainly change oversight requirements on both the lender and brokers side,” he added.

In recognition of this, the third audience poll found 41% are concerned about what the FCA supervisory team requirements look like. Gibbard emphasised that the redress scheme is part of a move to ensure greater transparency and simplification in communications with customers.

Summing up the session, David Betteley said “Clearly there is much still to be clarified and more guidance is required. We will be discussing the government, operational requirements and the outcomes the FCA wants to see in more detail at the Finance Connect summer conference on 4 June.”

The full summary of the Finance Connect webcast, sponsored by Odessa, will follow shortly. For details of Finance Connect’s summer conference and to register go here.