The FCA has today (11th March 2025) confirmed its approach and next steps in relation to motor finance discretionary commission arrangements (DCAs).
The FCA has confirmed that if following the Supreme Court’s decision, the view is held that customers have lost out from widespread failings by firms, then the regulator will consult on an industry-wide redress scheme. This has now all but closed off the potential for a complaint-led response by customers.
The regulator has stated that a redress-led approach would be “simpler for consumers than bringing a complaint…it would also be more orderly and efficient for firms than a complaint-led approach, contributing to a well-functioning market in the future”.
What should firms now consider?
The Supreme Court will hear an appeal against the Court of Appeal’s judgment on 1st to 3rd April 2025. Many firms will remain paused until this judgment is passed. However, a number of our clients are preparing for the likely potential next steps, associated with a redress-led approach.
As one of the Finance and Leasing Association (FLA) key partners on this issue, we have extensively discussed the topic. We encourage all firms to take proactive steps, including but not limited to:
- Population Identification: It’s key for firms to consider how they can identify the impacted population and any underlying cohorts. Consideration should also be given to customers who may have historic debt which has now been sold on. Also, if there are specific data gaps or anomalies which require addressing.
- Approach to Redress: For those who have not already started, it is key to consider how redress calculations could work and also, defining and running financial provisioning models to encompass redress and associated operational costs.
- Governance: Defining your standalone target operating model to handle a proactive redress scheme is critical. This will involve appointing a programme lead and identifying and engaging a technology provider to support with workflow management. It is imperative to begin developing productivity, pipeline, quality, costs, and outcomes MI to track progress for ExCo and Board members.
- Communications: Although it may still feel premature, many firms have already started to work on detailed communication plans. This includes the core make-up of the anticipated letter templates and wider internal (customer-facing colleagues) and external (FOS, Website, Socials, CMCs) communication strategies. This should also include having due consideration of mailing fulfilment providers and the use of other digital communications.
- Systems and controls: From having a defined workflow solution, thorough to payments execution and tracing capabilities, firms should revisit their end-to-end approach from a systems and controls perspective.
- Operational preparedness: Firms should proactively anticipate increased customer contact, in addition, to the demands of redress execution. Likely increased contact points will include increased information requests, emails, inbound calls and social media communications.
What are the potential challenges of a redress led approach?
We have supported and continue to support multiple leading motor finance businesses with their approach to DCA preparedness.
Firms who are best prepared understand that ‘By failing to prepare, you are preparing to fail’.
Whilst there is still uncertainty, it is clear that the chances of a redress-led approach are now significantly higher. A redress-led approach, in our experience, may present several unique challenges, including but not limited to:
- A dependency on accurate data as part of population and cohort analysis;
- Challenges around tracing and customer response rates (A/B testing, channel choice and preference);
- Differences in potential redress approaches and calculations between firms;
- Differences in the approach to taxation and notification;
- Challenges in relation to customer identity verification; and
- Greater transparency in terms of progress and regulatory oversight;
How can Square 4 help?
We remain at the forefront of the industry approach to DCA preparedness. Our support includes specialist regulatory and operational consultancy, interim operational deployment, technology provision, and extensive onshore and offshore execution capabilities.
Contact us at hello@square 4.com to speak to one of our experts today. We will ensure you are best positioned to move swiftly forward, allowing you to drive good commercial and customer outcomes.
