FCA Releases Motor Finance Redress Scheme Update

Introduction of an Implementation Period

The headline change is the addition of an implementation period of 3 months to allow firms to prepare for delivery of the scheme following the publication of the final policy statement in late March. 
This is a welcome change and will give everyone the opportunity to fully review the final scheme rules, review any changes to process, treatment and communication design, as well as build and test the necessary amendments.

In the release, the FCA have also suggested that lenders will have up to 5 months implementation period for older agreements. We expect the final policy statement to clarify if this means the scheme will start later for older agreements or if this is essentially providing a two-month extension to the timelines on older agreements.

The FCA have also said that firms will be given the option to process claims sooner rather than wait for the full implementation period. While it is not yet clear how this would be implemented while preserving a simple and clear scheme start date and timeline, this will allow any lenders who are concerned about increasing compensatory interest costs to begin processing cases as soon as they are ready.

Removal of Opt-Out for Existing Complainants

The FCA have suggested that those who have complained before the scheme start date will not be asked to Opt-Out of the scheme. The wording the FCA have used for this implies that these cases would go straight to a Provisional Redress Determination (PRD).

This update simplifies the approach and removes the requirement to essentially opt-in customers who have already expressed a desire to have their case reviewed.

The previously proposed rules required lenders to assume opt-in if the customer did not respond, and customers still had the ability to leave the scheme and seek alternative resolution (such as through litigation) at the PRD stage. This meant the opt-out process itself had little value.

The impact of this change however is quite small. Existing customers who were not expected to receive redress (which for many lenders is the majority) were already expected to go straight to a PRD, so there is no change here. So, the real change is for customers who are expected to receive redress.

Where customers are expected to receive redress, an initial communication may be needed ahead of the PRD. This is to mitigate the risk of not receiving payment instructions before the payment is due, as overdue payments are considered a recoverable debt and will begin to incur further interest at 8% until payment is made.

Immediate Acceptance of a Redress Offer

The FCA have restated that customers receiving a redress offer would be able to accept it immediately, rather than waiting for a final determination. 

Under the currently drafted rules, lenders must wait one month following the PRD before issuing the Final Redress Determination (FRD) and making payment. This is to allow the customer to object to the PRD if required. However, the FCA have reiterated that customers can accept the PRD at any point, in which case they would immediately progress to a FRD and redress payment. 

Recorded Delivery and Contact Channels

While not entirely unexpected, the FCA have confirmed that they are removing the requirement to use recorded delivery mail for all scheme communications. They have also suggested that lenders will be permitted to use a wider variety of contact channels that best meet consumers’ needs.

Again, this is a positive change from the regulator. The previous requirement to use recorded mail had significant practical and customer experience issues. We also know that some of the delivery providers had approached Ofcom to express concerns about the feasibility of managing the expected volumes across the entire industry.

The ability to use wider contact channels will lead to more efficient delivery, and potentially higher engagement and response rates. This does also come with a warning from the FCA however, and we would echo that warning. The use of wider contact channels does open the process up to more opportunity for fraud, and lenders will need to ensure that their solution is designed to mitigate these fraud risks.

From an EQ process and fraud control perspective, our recommendation would be to still make initial contact with the customer by post. This is because there are no reliable ways to trace customers to digital channels that would not present significant fraud risk. As a result, our view is all initial contact should still be issued in the mail (albeit not by recorded delivery/signed for) to preserve the existing fraud controls as well as ensure firms adopt more effective tracing processes.

Next Steps

Motor finance firms now have some of the answers to key questions raised from the Consultation. However, the full handbook text is needed to fully understand how these changes will be implemented in the rules. This is still expected to be issued by the FCA later in March. 

It is not too late to engage with EQ Customer Resolutions about how we can support your operational teams. Whether you need extra specialists to help meet customer contact volumes, a fully managed redress programme, or support in optimising processes and undertaking calculations, we can help. Our partnership model built to reduce risk, improve customer experiences, and give lenders the clarity and capability they need to move forward—faster, safer, and with complete peace of mind.