The FCA has now proposed its approach to historic motor finance commission arrangements. This marks an important moment for the sector, but one that requires firms to react quickly to respond to the Consultation Paper (CP25/27) and ready themselves for the delivery of a remediation scheme.
Overall, the FCA has proposed a fairly pragmatic scheme, with reduced fragmentation and avoiding an even more costly alternative. It’s a scheme that allows for the use of contemporaneous client data while making clear that the burden of proof on fairness sits with the lenders and brokers where the data is missing. This won’t be without its challenges, with the extensive scope from 2007 to 2024, a differentiated approach for customers, some opt-out and some opt-in, alongside ambitious timelines for firm action at each stage of the process.
It is also clear now that FCA expects more immediate preparatory work and consumer communications, so it’s not all about waiting for the final rules. Any firms that are not already well into their preparations may find it difficult to meet the staged timelines in due course. The FCA will continue to supervise the progress, quality and outcomes of the delivery of the scheme and plan to do so through regular firm data reporting, monitoring and assessments. They have also been clear about the role of brokers in their co-operation and data sharing with lenders, not ruling out action if this becomes problematic in securing timely redress for customers.
In summary, then:
- The FCA has set out how it intends to address potential harm linked to all motor finance arrangements, not just discretionary commission models and has provided further clarity on its expectations of firms
- A formal framework and timetable have been published, outlining how affected consumers may be able to seek redress
- The emphasis is on orderly, evidence-based remediation
At this point, we are steadfast in our advice to firms, and will continue to monitor the sector and share our ongoing views:
- Locate and assess relevant data: firms should be some way down the line on this, but the announcement sheds some light on the burden of proof, stressing the importance of operational capabilities of firms
- Map exposure and prioritise activity: understand the scale of affected agreements in light of the proposed scope of the scheme – scenario planning can now focus on defined pathways to remediation
- Revisit governance and controls: ensure you’re ready with clear ownership of remediation activity and controls, robust reporting lines, alignment with board and regulatory engagement and reporting plans.
- Prepare for customer contact and redress: even if final parameters are not yet set, laying groundwork for a fair and consistent response will reduce future pressure. This includes ensuring communications are effective in imparting understanding, as firms will want to avoid disproportionate levels of contact from customers if possible.
- Maintain clear records and defensible decision-making: setting up now to ensure a structured, proportionate and documented approach will be critical in a) getting it right for customers and b) demonstrating you got it right for customers!
While the volume of commentary is understandable, a proportionate response is essential. Like all customer issues of this nature, it can be navigated with a clear plan, disciplined execution, and steady leadership.
We’re working with firms to separate substance from continued speculation, helping them focus on the actions that matter now to prepare effectively.
If you’d like to talk through practical next steps for your organisation, we’re here to help. Contact a member of our Motor Finance Specialists below:
Roma Pearson – Author & Senior Advisory Director
Sean Kulan – Client Relationships Director
Tom Jeffery – Operations Director
