Seven steps to a best practice motor finance redress scheme

Charlene MCLAUGHLAN

Head of Sales and Marketing (Talan Data UK)

Christian ORAM

Government Sector Solutions (Talan Data UK)

Kirsty LAPPIN

Client Account Manager (Talan Data UK)

Rear view of new luxury red and white car parked in modern show room.

This month the Financial Conduct Authority (FCA) confirmed that an upcoming Supreme Court ruling could trigger the introduction of a scheme to compensate borrowers who were mis-sold car finance.

The FCA is set to announce its final decision within six weeks of the Supreme Court’s verdict from 1st to 3rd April, but experts are already predicting that a redress scheme is on the way, once FCA has gained greater clarity on its scope from the court ruling and consulted with industry.

This has major implications for motor finance lenders. Under a redress scheme, lenders would have to determine whether customers lost out due to the firm’s failings and offer suitable compensation. The FCA has made it clear that it will set rules for lenders and put in place checks to make sure they are followed. Remediation itself is likely to be extremely complex.

In this demanding and sensitive business context, a failure to take proactive steps could result in significant negative financial and reputational consequences. It is therefore imperative that lenders act early and start to put in place strategies and processes for an effective redress scheme.

In a series of blogs, we are setting out practical guidance for lenders as they look to respond to the FCA’s expected requirements. This first blog identifies the seven essential components of a best practice redress scheme.

The Seven essential components

1) Planning and preparation

Now is the time to put the right foundations in place:

Define clear scope and objectives: Precisely identify affected customers, products, and time periods. The priority for lenders now is to carry out thorough reviews of historical data, focusing particularly on discretionary arrangements and commission disclosure complaints
Establish a governance structure: Create dedicated oversight committees with clear roles and decision-making authority
Develop a comprehensive project plan: Include all phases, from investigation through payment and follow-up
Set aside adequate resources: Allocate sufficient budget and staffing, based on realistic assessment of scope.

Customer identification and calculation

2) Customer identification and calculation

It is vital that the right frameworks are in place:

Implement robust data management: Ensure customer data is accurate, complete, and properly maintained
Apply consistent calculation methodologies: Document and validate all calculation approaches
Include interest/time value in compensation calculations: Compensate customers for the time they were impacted
Perform independent validation: Have calculations reviewed by independent parties.

3) Clear communication

This requires a comprehensive strategy:

Use clear, jargon-free language: Ensure communications are easily understood by customers
Provide multiple contact channels: Offer phone, email, online, and postal options
Train frontline staff: Equip customer service teams with the knowledge to answer questions
Tailor communications to the audience: Consider language needs, digital access, and vulnerability factors.

4) Effective execution

Considerations for the execution phase are wide-ranging:

Prioritise vulnerable customers: Expedite redress for those in financial hardship or vulnerable circumstances
Establish efficient payment processes: Make it easy for customers to receive compensation
Document all decisions: Maintain detailed records of all redress determinations • Implement robust quality assurance: Regularly test processes to ensure accuracy and consistency.

5) Monitoring and reporting

It is essential to monitor progress and gather learning:

Track key performance indicators: Monitor metrics like completion rates, payment success, and customer satisfaction
Provide regular stakeholder updates: Keep management, boards, and regulators informed
Conduct post-implementation reviews: Identify lessons learned and areas for improvement
Maintain comprehensive audit trails: Preserve evidence of all remediation activities.

6) Regulatory engagement

Keeping pace with regulatory requirements is key:

Proactively engage the regulator: Seek input on approach and keep them informed of progress
Prepare for regulatory scrutiny: Document decision-making processes and rationales
Benchmark against industry standards: Ensure the redress approach aligns with regulatory expectations.

7) Long-term considerations

Data and learning can inform future action:

Implement preventative measures: Address root causes to prevent recurrence
Capture organisational learning: Document lessons learned for future reference
Monitor long-term outcomes: Track customer retention and satisfaction after remediation
Conduct regular reviews: Periodically assess the effectiveness of remediation efforts.

A key decision for lenders is the level of support needed to implement required processes and the extent to which that should be delivered by specialist partners. Potential risks, such as non-compliance, regulatory fines, data security breaches and inaccurate decisions and payouts, can be successfully mitigated by working with expert specialists.

Talan Data’s work is informed by two decades of experience in managing and supporting large-scale remediation programmes, including complex redress and data quality initiatives for the financial services sector. We have a dedicated team of data specialists ready to prepare and support responses to the anticipated FCA redress scheme – taking lenders from strategy through to implementation.

With the right partner by their side, lenders can be confident that their processes are not only compliant but deliver compensation to customers in the “orderly, consistent and efficient way” that the FCA expects.