Operationalising Stage 1 of the FCA Motor Finance Compensation Scheme

The first stage of the FCA’s proposed compensation scheme involves identifying who is in scope and communicating this to all consumers. This mass customer contact programme is under some very tight timescales for an exercise that involves firms essentially contacting nearly all their motor finance consumers. 

Here, we set out the key steps and considerations for operationalising this first stage of the scheme, and how to manage the tight timelines the FCA has mandated for this first phase.  

The first step is to determine who is in scope. This will involve assessing ALL motor finance agreements undertaken from 6 April 2007 to 1 November 2024, and identifying where one of the following was present:

This means firms must review their entire customer base and decide if they meet the criteria to be included in the scheme or not. The first two points were expected following the Supreme Court judgement and firms will have been preparing their data to identify the affected consumers. However, the third criteria of exclusivity arrangements was not expected to be one of the three binary determining factors to decide if a case was in scope or not. This presents firms with a new task to gather and use this data in a different way than many anticipated. 

The second step is to communicate these findings to ALL customers. Essentially the entire customer base needs to be written to, confirming if they have a relevant agreement within the scope of this compensation exercise. 

Whilst the initial communication doesn’t have to inform the customer which of the three criteria applies to them, it does need to inform them whether or not they are affected and included in the Compensation scheme. It also needs to give those who have complained prior to the scheme starting, the option to opt out of the scheme; as they are assumed to have opted in if they have previously complained. 

Firms at this stage need to have customers divided into two cohorts, customers who do and do not have a relevant agreement. These two groups are then further divided into customers that have already complained and those that have not. 

This is also where the tight timelines come into play, and forward planning is essential to prevent bottlenecks further down the line. Firms should plan the communications programme to ensure they have the time and capacity to deal with the expected customer responses. In addition, once a customer is contacted, it starts the clock on the investigation of their individual agreement so firms must be confident that they will be ready to move to stage 2 before sending the communications.  

For customers that have already complained, lenders have three months from the date the scheme starts to write and confirm if they are, or are not, impacted. This is expected to create an influx of customer contact. As those that are told they are not affected, and therefore will not receive redress, could contest this decision. 

For the rest of the customer base who have not complained, firms have six months from the date the scheme starts to complete this customer contact programme. This is the more complicated part of the process. For customers who have already complained, firms will have more recent and up to date contact details. This will allow for a higher degree of accuracy in reaching the intended recipients.  

With customers who they may not have engaged with in over a decade or more, contacting the right person could be more difficult. Data tracing and gap analysis will play a much larger role in this process and the FCA will expect firms to make every effort to find and communicate with their customers. 

Key Questions and Considerations: 

The scale of this communication exercise, and the tight timelines, present a huge challenge to the sector. While the initial Stage is straightforward on the surface, there are some key considerations to call out that add complexity when planning and undertaking this part of the Scheme. It is the requirement to confirm the existence of a relevant arrangement for each customer within the initial communication that firms will need to start planning for, immediately. 

Data and Research  

Firms need a firm handle on what data is available to them, either internally, through their partners and brokers, or in the wider market. They need to understand what information they have kept and how is it stored, and where the gaps are. Further questions include: how will cohorts be created and tracked through the process? How will opt-in and opt-out customers be managed and progressed? Firms will also need to decide if they need additional tracing support from external agencies and partners to track down historical customers. 

Communications Scheduling 

How firms schedule the communications programme to avoid bottlenecks later in the process will be key to the smooth running of the scheme. As will determining what resources are available in-house or through partners to help manage customer’s responses to these communications. How will firms mange customers contesting the decision that they are not affected?  

Forward Planning  

Are stages two-four ready to go once customers are contacted in stage one? The investigation window is three months from the point at which the customer is contacted to say they are affected. Firms need to be confident that they are ready to jump to this next stage following that initial contact. Plans to sequence and schedule the programme will ensure the delivery team are not overwhelmed and customers receive a timely service in line with FCA guidelines.  

Paused complaints that are not in scope 

Firms should consider now if the motor finance complaints currently placed on pause contain multiple points that may not be part of this compensation exercise. If there are elements that do not fall within the scope of this scheme, they should be identified and pulled out now to be dealt with under standard BAU processes. This will not only clear the process for the Compensation Scheme team, but will also prevent a backlog next summer.  

Even if the pause gets extended further, which is part of the FCA’s consultation, the last thing the delivery team are going to need is additional complaint points to handle. This will muddy the waters and could slow down the team when time is already tight. These additional points within currently paused complaints should be assigned elsewhere and can start to be processed now under separate complaints using the usual 8-week schedule by the firms BAU complaints teams.