Motor Finance

As a motor finance lender, you will be preparing your business in response to the regulatory position on discretionary commission arrangements (DCAs).

This is an evolving topic with a significant announcement on 11 March 2025 from the FCA. The FCA has said it will confirm within six weeks of the Supreme Court’s decision if it is proposing an industry-wide redress scheme and how that will be taken forward. The FCA would be required to consult on rules for an industry-wide redress scheme and such a scheme would include all customers sold motor finance with a DCA.

There are still a number of uncertainties in play as we await the outcome of the Supreme Court hearing to understand if all commission-based motor finance requires redress, or whether it will be limited to DCA based motor finance. The details of the scheme the FCA may propose could vary, although current examples of these give some insights into how they may be approached. Finally, it’s not clear whether a redress scheme could apply to consumer credit contracts before 1 April 2014.

The timeline for certainty about the redress scheme approach could now extend to the end of this year. If the Supreme Court decision were to be published in June, we could expect to see an FCA consultation by the end of July. A consultation would typically be for a period of three months which takes us to the end of October. The FCA would need some time to review consultation responses and take final rules through its own governance processes before these are published.

Four key questions for Motor Finance Lenders

What is your exposure to DCAs?

Firms should consider their potential exposures to inform provisioning or contingent liabilities. This now requires firms to consider a scenario where all customers who were sold motor finance through a DCA may be included in a redress scheme. This may substantially increase potential exposure to redress. In extreme cases firms may need to consider options for restructuring and their wind-down planning arrangements. You can read more about estimating exposure under the current circumstances in our article click here.

How will you handle the review process?

An industry-wide redress scheme set up under FCA’s rule making powers has only been used twice before, British Steel Pensions and Arch Cru. These existing redress schemes give insights into the approaches the FCA can take to the process, timings for completing stages, approaches to customer communications and redress methodologies. Firms may have already completed planning based on a complaints led approach and now need to switch to considering an industry-wide approach, identifying what the likely changes would be to redress programme set up, processes and procedures, as well as capacity planning to manage resourcing levels.

How will you identify in scope customers?

A start point for an industry-wide redress scheme is identifying the full scope of customers and efficient access to customer records or possibly other data sources to support compiling complete customer records. These may need to be collated from multiple sources and varying formats. The current redress schemes require firms to make ‘all reasonable efforts’ to find information. That can mean using public sources of information to trace customers current contact details, or contacting other parties for information about the finance. Where records can be digitised this offers the potential of certain processes to be automated and efficiency gains in handling increased volumes.

How will you ensure you meet regulatory expectations?

A programme of this size requires strong governance and oversight to ensure standards are met. You may require specific external support to provide validation over the design and execution of any redress programmes and to provide confidence to internal and external stakeholders about regulatory requirements or programme risks and progress.

How we can support you

If you have not yet assessed your exposure and made provision for remediation, we can help you to analyse customer populations, forecast the likely volume of claims, and calculate how exposure to claims varies under the potential regulatory and legal outcomes.

If you are looking to undertake a customer data exercise, we can help. From scoping and identification through to extracting data from multiple sources, we can support you with an approach that is comprehensive, defensible and meets regulatory requirements.

If your exposure to remediation is high, you may be considering restructuring. Our team can advise you on your options to protect longer-term viability. We have a proven record in finding solutions that avoid formal insolvency and return business to good financial health.

If you are considering buying or selling a business, we can help. Our sector experts are experienced in special situations where either party may be in a difficult scenario. We can help with valuations, due-diligence, deal structures, and funding.

Where you need additional assurance that you are meeting FCA expectations, we can help. This includes compliance with DISP rules and that going forward you are delivering good consumer outcomes aligned to The Consumer Duty.

As you start to experience increased volumes of customer complaints and remediation this may exceed the capacity of your existing teams. We can quickly deploy experienced and skilled interim resources, scaling-up and down to meet demand.

If you are assessing your wind down planning arrangements, we can help to ensure that they are adequate and compliant with regulations. Where you are facing winding down, we can help you do this in an orderly manner, including managing liaison with regulators.

You may already be preparing to handle a customer remediation exercise. Our team have supported on some of the largest projects in financial services. We understand the regulatory expectations, the operational challenges, and can provide additional resources where required.