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Motor Finance Commission Arrangements – Time to Act?

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.

Current Position


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:

  • A High Court ruling in favour of the Financial Ombudsman Service (FOS) in its decision to uphold a complaint relating to DCAs against a major UK Bank. Permission to appeal was subsequently granted by the Court of Appeal, with a decision on the matter expected no later than 8th December 2025.
  • The Supreme Court also concluded its appeal hearing on 3rd April 2025concerning a landmark ruling by the Court of Appeal4. The Supreme Court’s judgement is expected to be published in July 20255, and is widely anticipated to bring further clarity around expected disclosure practices, the duty owed by broker-dealers to customers and where lender liability may lie. As part of its submission during the hearing, the FCA told the Courts that the existence of a fiduciary duty was “fact sensitive” and could not be generalised. As such, the Court should have regard to the parallel regulatory framework when deciding on legal and equitable remedies in this case6
  • The FCA has also confirmed7 that, dependant on the Supreme Court’s decision, and specifically whether it concludes that motor finance customers have lost out from widespread failings by firms, that is it then likely to consult on an industry-wide redress scheme within six weeks of the Supreme Court’s decision. Taking account of the current timelines of the Supreme Court ruling, and publication of their judgement expected in July 2025, the FCA could begin its consultation as soon as August or September 2025. Whilst this provides firms with an additional three-to-four months to act beyond the original timeline, where the FCA’s pronouncement had been expected to be released in May 2025, impacted firms have an opportunity to use this additional time to prepare for any potential pro-active programme of remediation.

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:

  • For DCA’s – consideration of a variety of possible time periods (e.g., April 2007/2014 to January 2021), redress outcomes (e.g., based on redress being at a zero-commission paying rate and/or at a permitted fixed rate of commission) and interest awards (e.g., 8% simple interest and/or more commercially favourable rates).
  • For non-DCA’s – while a significant amount of certainty remains on the likely outcome of the forthcoming Supreme Court ruling, some firms have nonetheless modelled their financial exposures on a worst-case basis, taking account of potential financial ramifications to the firm should the Supreme Court not overturn the Court of Appeal’s decision. This includes consideration of a variety of scenarios and timeframes, such as possible redress being payable from April 2007/2014 to October 2024, based on all commission paid by the customer and/or at an agreed percentage of commission alongside modelling a variety of interest rate awards of 8% plus a commercial rate of interest.
  • Given the UK Government's proposed intervention8 to the Supreme Court, a more favourable outcome for firms could involve awarding redress based on "actual loss suffered". This approach, grounded in behavioural economics and analysis of historical customer data and market dynamics, considers likely customer and firm actions or payments under different disclosure or commission models. While the FCA’s specific analysis remains unclear, firms should proactively develop their methodologies for assessing potential "actual loss".

What does this mean for firms? 


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.

What actions should firms be taking now?

 

Regardless of the final position the FCA takes, firms must still prioritise and resolve their data challenges in order to fully understand the exposures they face and to rectify potential issues through their customer remediation programmes. Currently, the focus of firms is on identifying impacted customers and identifying any core data gaps, which can be challenging given potential variations in redress calculation parameters. Focus should now be given to customer journeys and the data and technology needed to facilitate a smooth end-to-end remediation journey.

The data required for a redress scheme is broader than standard key product information, including sources such as the rate cards in place at the time of product sale, application of any pricing overlays, risk-based pricing (RBP) data, information relating to disclosure practices (both written and verbal at the time of product sale), as well as deal structures and variations.

If a pro-active redress scheme is required, irrespective of the form, there will also be a need to resolve any backlog of customer complaints and queries related both to DCA and non-DCA arrangements. To respond accurately and efficiently firms will need to have all relevant population data (including complaints and queries) available where it is needed. It is essential for firms to be able to understand the full picture for each customer before execution to avoid a poor customer outcomes and process inefficiencies. To overcome these challenges, it will be important for firms to have undertaken operational readiness assessments and capacity planning, both of which will ensure preparedness for any surge resulting from the FCA’s findings.

As part of any readiness assessment, the use of technology tooling should be reviewed. Technology can not only support data sourcing, reconciliation and rectification, for example through the application of Generative AI tools, Optical Character Recognition (OCR), Natural Language Processing (NLP) and Robotic Process Automation (RPA), as well as the creation of a centralised data platform.

Centralising and combining remediation data and processes enhances controls through the execution phase. Some common use cases for technology in remediation are:

  • Automation of redress calculations.
  • Integration into core banking systems to automate the refresh of customer/product information.
  • Integration and analysis of customer tracing and payment information.
  • Analysis for customer segmentation to ensure customers are processed through the correct remediation journey.
  • Data quality management.
  • Triggering and management of payments and outbound contacts.
  • Management of the remediation audit trail, capturing a history of customer contact points and calculation information throughout the remediation lifecycle.
  • Integration of data into operational workflow systems.

Firms that have taken all reasonable steps to obtain, validate and rectify data gaps, alongside establishing appropriate solutions for management of their remediation, will be in a stronger position to move quickly following the FCA’s announcement.

 

While the details of remediation and redress journeys are yet to be finalised, every firm with a historic DCA and non-DCA population will have a significant operational journey to undertake. The regulator, for their part, will expect timely, controlled operations and strong governance that results in good customer outcomes. Areas that firms need to consider include:

  • Governance. Firms need to demonstrate that they have appropriate governance and oversight in place for decision-making, ensuring the board can appropriately challenge where necessary.
  • Customer journey mapping. To aid preparation, firms should also consider mapping customer journeys and, as part of this exercise, understand whether there are opportunities to improve the efficiency of those journeys through technology. This would also support firms in identifying any operational challenges that may exist from the outset.
  • Population segmentation and customer verification. Firms should further ensure that they have a sufficient understanding of their customer population and the different customer segments that may exist. This will allow them to consider how they best meet customer needs and design effective operations.
  • Operational planning and testing. While the exact details of remedial action are unknown at this time, there is an expectation that firms will have used the lead time to progress operational capacity planning and test assumptions. In undertaking this activity, firms should build a capacity model utilising process assumptions and where possible, test these assumptions as activities are progressed to re-align to capacity needs.
  • Customer communications. Firms should ensure that their communication strategy is robust, having considered contact channels and contact data. They will need to ensure they understand their customers communication needs and have in place a plan to test and improve the delivery of communications.
  • Resource and delivery models. Firms will also need to consider the resources and skills required to deal with the anticipated volume of remediation. Alongside this, firms should also be designing an appropriate delivery model. A surge in recruitment once remedial plans are finalised is likely, and the regulator will expect firms to plan for resource requirements early and effectively.

Besides the provision of skilled resources to support remediation, firms will also need robust case management systems, processes and decision-making tools to ensure they can execute potential remediation programmes and manage any backlogs of DCA/non-DCA complaints effectively. Without this in place, firms risk delivering poor outcomes for customers and missing the opportunity to build better controls and efficiencies into their processes. There are a number of ways for firms to tackle this challenge, including:

  • In-house recruitment and operations management. In this scenario, the firm manages the entire process itself. This provides a firm with a high degree of control but firms also run the risk of potential remediation skill gaps and the overwhelming of available resources.
  • A managed service delivery with a trusted partner. In this case, the third party works with the firm to agree objectives, scope and timelines for delivery and would execute the entire remediation operation on their behalf. This is especially valuable where a firm may not have experience of large-scale remediation operations with a regulatory-focused objective.
  • Resource augmentation. This can be a viable option for firms that require headcount to scale up rapidly in response to increased demand and efficiently and effectively downsized when demand decreases. Management and control remain with the firm in this model.
  • Targeted role outsourcing. In this model, a third party would typically advise on or operate one or several specified functions. This service allows firms to minimise time spent on tasks where additional skills are required, allowing them to focus on areas of organisational strength.
  • Automation. Remediation and technology specialists can offer technology solutions that reduce the need for manual activities through the application of data analytics, automation, and deeper digital transformation. In this scenario, some resource and manual effort for exception handling will still be required.

Given the increased likelihood of an industry wide scheme, financial markets and regulators will reasonably expect firms to commence detailed financial analysis and modelling as soon as possible to prepare and evaluate their financial exposures. This may increase pressure on existing financial resources as well as potentially driving demand for new skills. In this context, and in anticipation of the conclusions of the courts and the FCA, firms should proactively consider the following:

  • Provision estimates: This involves deriving initial estimates for a range of redress outcomes (best and worst cases) based on the data available. Firms will likely have initial provision estimates that they will need to stress in order to quantify the ranges. This process will assist in rapidly uncovering key data and assumption gaps.
  • Financial planning requirements: Forming a view of the financial impact of future resourcing needs for a redress programme will include assessing the impact on existing business plans.
  • Strategic forecast impact: Model various scenarios to understand the possible outcomes on the firm’s business and inform key strategic decisions needed to maintain a robust business. This will also provide a basis for demonstrating financial resilience.
  • Stress testing and reverse stress testing: Integrate the potential financial implications of remediation and redress into these processes. This involves assessing the impact on capital and liquidity under severe but plausible scenarios, ensuring the firm can uphold regulatory minimums while meeting lending targets.
  • Regulatory documentation: Given the significant likelihood of risks crystallising, regulators will expect firms to incorporate the potential impact of redress payments in scenarios contained in their regulatory filings, including ICAAP as well as Recovery & Resolution plans.
  • Capital raising options: Firms should also proactively evaluate their capital-raising options in scenarios where their capital position weakens. Early planning can streamline recovery actions, particularly for options like significant risk transfer transactions, which can be time-intensive to arrange.