What's Happening?
Arum, a leading collections and recoveries consultancy, has issued a warning to lenders regarding the Financial Conduct Authority's (FCA) proposed Motor Finance Consumer Redress Scheme. This scheme, which
could result in compensation costs exceeding £11 billion, addresses motor finance agreements where commission structures were not properly disclosed, potentially creating 'unfair relationships' under the Consumer Credit Act 1974. Lenders will be responsible for identifying affected customers, calculating redress, and managing repayments, while brokers must cooperate fully. The operational and financial burden will primarily fall on lenders, who face significant challenges in navigating increased customer complaints and disputes.
Why It's Important?
The FCA's proposed scheme represents a major regulatory intervention in the UK financial services sector, akin to the PPI scandal. It will have substantial implications for lenders, brokers, and debt collection agencies, reshaping their operations and compliance practices. Collections and recoveries teams will need to address increased customer complaints and vulnerability disclosures, reassess active collections, and enhance governance and compliance functions. Arum emphasizes the importance of readiness, advising firms to audit agreements, pause automated collections, and form cross-functional working groups to manage the scheme's impact effectively.
What's Next?
As the FCA's consultation progresses, lenders and brokers will need to prepare for the scheme's implementation by enhancing their operational processes and compliance measures. Firms are advised to invest in readiness, governance, and customer communication to protect their regulatory standing and strengthen consumer trust. Arum is actively assisting clients in building redress playbooks and preparing their teams for the changes ahead, ensuring they can lead effectively when the scheme becomes reality.
Beyond the Headlines
The scheme could lead to long-term changes in the collections and recoveries industry, prompting firms to adopt more robust compliance and governance practices. It may also influence broader financial services regulations, encouraging greater transparency and consumer protection in lending practices.
