The Financial Conduct Authority (FCA) has cautioned motor finance providers it is "very concerned" with how equipped the sector is to deliver its £9bn compensation programme. The regulator dispatched correspondence to more than 100 companies last Friday after reviewing the industry's proposals to execute its controversial compensation initiative.
FCA Raises Alarm Over Operational Readiness
"We are very concerned about many firms' operational readiness to handle complaints," the regulator stated in correspondence viewed by City AM. "A significant number of plans are not yet capable of supporting timely and accurate redress payments."
Motor finance providers will this week participate in a roundtable discussion with the regulator as the compensation dispute persists, according to individuals with knowledge of the situation, as reported by City AM. The FCA has said that eligible claimants will get an average of £830, but it will vary and some will get more, some less.
Industry Pushback and Legal Challenges
The correspondence cautions it will release "examples of good and poor practice in the coming weeks." One sector insider countered that "banks have past experience of mass redress schemes and have done those exercises on a large scale before... but for some manufacturers it will be their first time and they will need to industrialise the process very quickly."
City lenders – including Lloyds, Santander and Barclays – face liability for as much as £9bn in the programme, which relates to the use of 'secret' commission arrangements that kept consumers uninformed. The Supreme Court delivered the industry a tepid victory last year, yet left open the possibility of a redress scheme, determining one claimant's commission to be excessive.
FCA Calls Out Motor Finance Lenders for Falling Short
The definitive proposals for the industry-wide redress scheme were released at the end of March and encountered opposition from Mercedes-Benz, Crédit Agricole Auto Finance and Volkswagen. Mercedes has thus far set aside £400m for the debacle, while Volkswagen is yet to make any provisions.
Consumer campaign group Consumer Voice is additionally mounting a challenge to the redress scheme, represented by Courmacs Legal. The escalating resistance has caused progress to stall, with the FCA committing to "defend [the scheme] robustly" at the Upper Tribunal.
FCA Emphasises Need for Preparation
"Preparation is necessary, whether or not the scheme goes ahead," the FCA said. "Scheme implementation plans should comprehensively set out firms' plans for complying with their obligations under the scheme rules. Based on the plans reviewed to date, this is not the case for many firms."
The letter raised concerns regarding the industry's dependence on underdeveloped systems and processes, alongside inadequate oversight of third-party and automated procedures.
Toby Hall, director of scheme supervision at the FCA, said: "While there is ongoing legal uncertainty, firms should continue preparing for all scenarios. Consumers and markets need confidence that, whatever the outcome, complaints will be handled consistently, efficiently and fairly."
