After approximately 14 months of uncertainty while the market awaits decisions from both the Financial Conduct Authority (FCA) and the Courts, the regulator has provided some clarity. This came with the likelihood of an industry-wide redress scheme being signalled once again by the FCA as part of its Motor Finance Review1, giving firms more certainty around the likely outcomes and timeline they can expect.
Building on the actions from our previous blog2, this blog outlines some critical no-regret actions that firms should take now in order to get on the front foot and prepare for a potential pro-active programme of remediation from the FCA.
While the FCA has not yet reached any firm conclusions in respect to its regulatory intervention concerning Discretionary Commission Arrangements (DCAs) since our last blog in October 2024, there have been a number of notable regulatory and legal developments in the market. Specifically:
Following these developments, firms have recognised that some form of redress intervention in this area is likely, with many beginning to model a range of best and worst case scenarios as part of their preparation and mobilisation for their own DCA/Non-DCA programme and to inform their year-end provisioning calculations. This modelling activity includes:
Whilst it is not currently possible to reliably predict the conclusions that the courts and the FCA will reach, the regulator has signalled the likelihood of an industry-wide scheme on three separate occasions now9, a solution it regards as the most orderly and efficient for customers and firms. The FCA has not yet provided any indication on what the parameters of such a redress scheme would include. For example, whether the scheme itself would be voluntary or involuntary, be run on an opt-in or opt-out basis, whether it would be sanctioned under s404 of the Financial Services Act10 or as part of a scheme of arrangement. Prior schemes sanctioned by the FCA11 may not be directly comparable to the nature, type and volume of customers impacted by a Motor Finance redress scheme. However, the read-across that can be applied from these prior schemes does indicate some no-regret actions that firms should consider now to sufficiently prepare both operationally and financially for this type of remediation activity.
If you would like to discuss any of the proposed actions highlighted in this blog, please reach out to any of the contacts below.
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References
1. Statement on motor finance review next steps | FCA
2. Motor Finance Discretionary Commission Arrangements | Deloitte UK
3. Wrench (Respondent) v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (Appellant) - UK Supreme Court
4. Court of Appeal Judgment Template
5. Car loans commission ruling not likely until the summer as case ends
6. FCA written submissions [2024] EWCA Civ 1282
7. Statement on motor finance review next steps | FCA
8. Reeves bids to intervene in car finance case that could cut lenders’ £30bn bill | Financial sector | The Guardian
9. Inside FCA Podcast: Nikhil Rathi on reviewing the motor finance market | FCA, PS24/11: Extending the temporary changes to handling rules for motor finance complaints and Statement on motor finance review next steps | FCA
10. S404 Financial Services and Markets Act 2000
11. Arch Cru redress scheme , British Steel pension redress scheme | FCA, Interest rate hedging products (IRHP) | FCA