As the motor finance industry awaits the Supreme Court’s ruling on the scale of a potential redress scheme, lenders have been advised to prepare for the worst but not to neglect their day-to-day operations.
Following a landmark Court of Appeal ruling last October, which raised the possibility of car finance firms facing complaints and compensation claims for all types of commission, not just discretionary commission arrangements (DCAs), the Supreme Court granted permission for two car finance lenders to appeal the decision.
The Supreme Court recently rejected an intervention by finance minister Rachel Reeves and with a hearing scheduled to take place by April, it remains to be seen how the ongoing court wrangling will influence the Financial Conduct Authority’s final decision on the matter.
The bottom line is that, whichever way the FCA swings, lenders are likely to be facing months of costly disruption.
Martin Pearson, Firstsource EMEA SVP (Banking & Financial Services and Public Sector), gives his take on what lenders should be doing to prepare for a spike in complaints and compensation claims…
What is the likely operational impact of the FCA probe?
“The main focus for lenders should be ensuring that any activity relating to the investigation is ringfenced from the existing business as usual (BAU) operation. There will need to be robust reporting in place once the decisions have been reached and then there will be set timescales by which all firms will need to have dealt with the cases.
“However, data subject access requests (DSARs) and complaints will still need to be handled within the existing regulatory framework. Most firms will have introduced new categories within their complaints systems to allow them to be able to keep this activity separate. Firms will want to ensure their ‘normal’ BAU activity for these topics is not impacted and their existing levels of performance are maintained.”
What lessons can lenders take from past incidents, such as the payment protection insurance (PPI) investigation?
“The biggest learning from PPI is for firms to ensure they are 100% prepared for what is to come down the line. In previous times there has been a major lack of preparedness.
“Nowadays, most organisations will have playbooks and scenario planning for such remediation activity, which will include many things from potential financial redress required and therefore provision to operational impacts, new processes required, support from third parties, what system changes are needed and a change roadmap to ensure delivery.
“They will also be looking to see if there is a different way this ringfenced activity can be worked. It’s crucial that lenders who are likely to be impacted are working with trusted partners and experts in the field, who can offer assurance, demonstrate good customer outcomes, and will deliver to plan and budget.
“Ultimately, with some industry experts claiming that the motor finance investigation could become ‘the next PPI’, time is of the essence to identify a solution that will reduce costs and preserve CX.”
How can lenders balance responding to complaints and compensation claims with maintaining customer experience (CX) and trust?
“This investigation will increase the pressure that motor finance lenders are under. Claims management companies (CMCs), for example, often drop a file that can increase the workload of a firm by 400% in one go. It is important for morale that colleagues feel supported during these periods of pressure and can handle the incoming workload with the same quality and outcomes, without feeling pressurised to rush in to making a decision.
“After all, complaints are regarded as a moment of truth in the lifecycle journey of a customer, and often can be the differentiator to being an attractor or detractor for a company’s net promoter scores (NPS).”
With a decision on the future of the investigation expected imminently, lenders should be ensuring they are fully prepared for the significant upheaval that would be caused by a mass redress scheme, while simultaneously protecting BAU operations. Anything short of this could be catastrophic for a company’s reputation.
This article was originally published in Motor Finance Online as a comment piece on 27 February 2025.