Six priorities for motor finance firms ahead of likely FCA redress scheme

Six priorities for motor finance firms to address in anticipation of a potential Financial Conduct Authority (FCA) redress scheme.

As the motor finance industry awaits the Supreme Court’s judgment on historic commission arrangements, the Financial Conduct Authority (FCA) stated that it will confirm within six weeks if it proposes to mandate a consumer redress scheme.

This looming possibility has already sent ripples through the sector. The FCA has already announced that it will issue an industry-wide consultation once the judgment is handed down, and firms should be ready to respond. The FCA has the power to mandate a consumer redress scheme under s404 of Financial Services and Markets Act 2000, and its own FCA Handbook states that rules made by the FCA under this power will be subject to a formal public consultation. While the FCA Handbook states that the “consultation period will usually be three months long.” (see CONRED 1.2.1), it is believed that, due to the systemic impact on the industry such a decision may have and public interest in the decision to be taken (whether or not to mandate a consumer redress scheme), this consultation period is likely to be shorter, potentially 30 days. While the final shape of any redress scheme remains uncertain, the direction of travel is clear. The time to prepare is now.

Drawing on the FCA’s public statements and our internal industry insights, this article outlines six critical priorities motor finance firms should focus on to ensure they are institutionally ready for what could be one of the most significant consumer remediation exercises in recent UK financial history.

1. Understand your data sources, gaps, and integrity

At the heart of any redress scheme lies data. In the event a redress scheme is mandated, Firms will need to assess whether customers were harmed by commission arrangements, likely within a pre-defined Relevant Period, and if so, calculate redress accordingly. This requires a deep understanding of historical data—some of which may date back to 2007.

Key questions firms should be asking now include:

• what data points are needed to assess a claim? For example, counterfactual cashflows, commission structures, and customer disclosures
• where is this data stored? Is it digital, archived, or in hard copy?
• is the data complete and accurate? Are there gaps that need to be filled or inconsistencies that need to be resolved?
• can you quickly build a contact list of in-scope customers? This includes verifying addresses and tracing customers who may have moved or passed away.

An exercise for firms to locate their data should begin immediately.  Firms would be wise to kick the tires on their first, second, and even third understanding of where relevant data is and how easy it is to retrieve.  There is no merit in undertaking the build and initial execution of a redress scheme only to discover further data sets that were thought not to be available.  Firms should also consider commencing data cleansing and enrichment exercises. Firms that delay may find themselves unable to meet tight regulatory deadlines, and, given the length of time that an FCA remediation scheme has been on the horizon, there is unlikely to be a large amount of sympathy afforded for delays due to data retrieval and cleansing.

2. Redress process design is iterative and takes time

Designing a redress process is not a one-off task—it’s a dynamic, evolving process. The FCA has indicated that any scheme will be principles-based rather than based on a basic counterfactual cashflow review, meaning that it is likely that Firms will need to tailor their approach to their specific commission models and customer bases.

Initial frameworks will almost certainly undergo multiple iterations as Firms and the FCA build a shared understanding of what fair redress looks like. This is particularly true given the complexity of discretionary commission arrangements (DCAs), which were banned in 2021 but remain at the centre of the current legal scrutiny (or indeed, whether a potential scheme may extend its scope to include other types of commission arrangements) https://www.fca.org.uk/news/statements/key-considerations-implementing-possible-motor-finance-consumer-redress-scheme.

Also, the FCA has outlined high level features that it may consider when designing a redress scheme, which includes whether the scheme may be on an “opt-in” or an “opt-out” basis. Either of which will drive fundamentally different, but similarly complex considerations in framework design, which should be subject to pilot testing and assurance review to ensure procedural and outcome compliance with overarching FCA principles.

Firms must also prepare for the involvement of Claims Management Companies (CMCs), which may introduce additional complexity. Whilst the FCA has warned consumers against unnecessary CMC involvement, Firms should anticipate a high volume of pre-action letters and design processes accordingly.

3. Scope and eligibility: plan for multiple scenarios

One of the most challenging aspects of any redress scheme is defining who is in scope and who is eligible. These are distinct but related concepts:

• scope refers to whether a complaint relates to a Relevant Commission Arrangement during the Relevant Period
• eligibility considers whether the complainant is entitled to redress (for example, are they the original customer, a legal representative, or a CMC?), and if so, how the scheme might engage with them

Firms should develop contingency plans for different scenarios, such as:

• a broader or narrower relevant period
• inclusion or exclusion of certain commission types
• treatment of deceased estates, dissolved partnerships or companies, or terminated agreements

It’s also essential to consider whether customers have already received redress through previous schemes or complaints. A robust eligibility filter can help avoid double compensation and ensure consistency.

4. Prepare to design a process map that accommodates split complaints

Split complaints—where a single customer has submitted a complaint concerning both in-scope and out-of-scope acts or omissions—pose a unique challenge. These cases may require separate review tracks, potentially involving different teams and regulatory standards, but should also be coordinated to ensure that the customer has been treated fairly, and the complaint is dealt with in a holistic manner.

Firms should:

• define what constitutes a split complaint
• design a process map that clearly delineates how such cases will be handled
• ensure compliance with DISP (Dispute Resolution: Complaints) rules for regulated products, while developing DISP-adjacent processes for in-scope complaints.

This level of granularity is essential not only for operational efficiency but also for demonstrating to the FCA that the Firm is taking a timely, transparent and fair approach, in line with its published principles.

5. Consider a strong project governance framework

No redress scheme can succeed without robust governance. This includes:

• a dedicated Project Management Office to track progress, manage risks, coordinate across functions, and manage resources in a lean and agile way
• a project board to provide strategic oversight and challenge
• a complex case committee to handle nuanced or precedent-setting complaints
• legal and risk teams experienced in overseeing FCA mandated redress schemes to provide second and third lines of defence

Governance structures should be agile enough to adapt to evolving FCA expectations while maintaining rigorous oversight. Early identification of issues—before they are flagged by the FCA or a Skilled Person—can prevent costly delays and reputational damage.

Also, Firms should take care engaging consulting firms to design and deliver a redress scheme.

Further, Firms should consider the benefit of engaging a law firm to support them to design, deliver and risk assure a redress scheme, which will be able to provide all the specialist capabilities required, with the addition of providing an appropriate veil of legal privilege over aspects of the investigation of the complainants, programme design and decision making. 

6. Remember, a redress programme is not a change programme

A redress scheme is a very unique type of programme, with a variety of novel issues that arise. The one thing to fix at the forefront of your thinking at an early stage is that a redress programme is not a change programme. When redress programmes are designed and delivered by change managers, there are three certain risks: the programme will:

• overrun
• overspend
• be overly complicated

This approach would be wholly at odds with the FCA published principles of timeliness, simplicity and cost effectiveness. When engaging external expertise, firms should satisfy themselves that they are engaging firms with demonstrated experience in designing and delivering large-scale remediation programmes.

Conclusion: readiness is a strategic advantage

The FCA has made it clear that it wants to move quickly once the Supreme Court delivers its judgment. Firms that wait for certainty before acting risk being left behind.

By focusing thinking now on locating data, data integrity, process design, eligibility criteria, complaint mapping, CL mitigation, and governance, motor finance Firms can position themselves not only to comply with a future redress scheme but to lead it.

The road ahead may be uncertain, but the direction is clear. Readiness is no longer optional—it’s a strategic imperative.