The City watchdog has warned motor finance lenders it is “very concerned” with how prepared the industry is to implement its £9bn redress scheme. The Financial Conduct Authority (FCA) dispatched letters to more than 100 firms last Friday following a review of the sector’s readiness to implement its widely-criticised redress programme.
“We are very concerned about many firms’ operational readiness to handle complaints,” the regulator wrote in letters seen by City AM. “A significant number of plans are not yet capable of supporting timely and accurate redress payments”.
Motor finance lenders are set to attend a roundtable discussion with the watchdog this week as the redress row rumbles on, according to sources familiar with the matter, 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.
The letter cautions that it will publish “examples of good and poor practice in the coming weeks”. One industry insider pushed back, arguing 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”.
Major City lenders — including Lloyds, Santander and Barclays — face potential liabilities of as much as £9bn under the scheme, which centres on the use of ‘secret’ commission dealers that left consumers in the dark. The Supreme Court delivered a lukewarm victory for the industry last year, yet left the door open to a redress scheme, ruling one claimant’s commission to be excessive.
FCA calls out motor finance lenders for falling short
The final proposals for the industry-wide redress scheme were published at the end of March and have since faced legal challenges from Mercedes-Benz, Crédit Agricole Auto Finance and Volkswagen. Mercedes has so far set aside £400m for the debacle, while Volkswagen is yet to make any provisions.
Consumer campaign group Consumer Voice is also mounting a challenge to the redress scheme, represented by Courmacs Legal. The growing backlash has caused progress to stall, with the FCA pledging “defend [the scheme] robustly” at the Upper Tribunal.
“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 over the industry’s dependence on underdeveloped systems and processes, as well as 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.”
