FCA: Preparing for the motor finance redress scheme is critical

Garry Evans, TCC Group’s Chief Commercial and Product Officer, reflects on the recent FLA Annual Motor Finance Convention.

The key takeaway from the FLA Annual Motor Finance Convention is clear: If your plan was to wait for the final guidance from the FCA before starting your preparation for the redress scheme, you will be too late, and the FCA will not be happy.

The recent motor finance industry conference left no doubt about the main issue on everyone’s mind: the forthcoming FCA-led redress scheme. With approximately 40% of the agenda dedicated to this single topic, the scheme is now the defining challenge and opportunity for motor finance providers in the year ahead.

Diverse stakeholder perspectives

The event featured a wide range of voices, each reflecting different priorities within the motor finance landscape.

HM Treasury emphasised the importance of keeping the scheme as focused and straightforward as possible, while remaining mindful of its impact on the market.

Legal representatives for automotive finance companies voiced concerns that the draft scheme remained too broad and costly. Many have been working closely with the FCA to ensure tighter parameters.

Compliance consultancy firms focused on the need to get ready now, ahead of final guidance. Target organisations for the redress scheme must prepare by getting any and all documentation required to identify the eligible population and collating all data likely to be involved in redress calculations.

They also suggested that target organisations should invest in tailored technology to handle redress efficiently and at pace, with data security and operational integrity carefully considered. Starting now also helps secure the right team to manage the scheme and expected volumes. Once the scheme is initiated, many firms will be competing for the same resources; the best will be picked up first, and as resource becomes more scarce, the price will rise.

Consumer groups, as relayed by the FCA, expressed frustration, questioning both the pace of the process and the adequacy of proposed payouts, including an average of £700 seen as too low by some.

The FCA dispels the misconceptions

Some motor finance providers arrived assuming delays were likely, hoping and expecting the FCA might scale back the scheme or push deadlines to late 2026, with talk of potential judicial reviews.

The regulator promptly dispelled those misconceptions. The FCA’s message was clear: the scheme must be delivered swiftly and decisively, with very little scope for deferral. As the regulator considers all aspects of the scheme during the consultation period, it has acknowledged the need for balance between fairness, accuracy of payment and practical deliverability.

More complex loss-calculation mechanisms were reviewed, yet the need for hard-to-source data would put more pressure on firms and extend the scheme beyond what is acceptable.

The FCA is said to be comfortable that available data and the proposed simplified calculation methodology will enable faster, balanced outcomes for customers. If a minority of customers receive payments where a court case might produce a different outcome, that is considered acceptable to prevent all cases needing in-depth court review, which would cost billions and take years to complete.

What can firms expect to change, and what stays

Firms should note several likely points of refinement:

• Timelines are unlikely to move much, if at all. Due to previous FCA communications, readiness is expected, and preparations starting after the final scheme is announced will be severely frowned upon.
• The overall approach to redress calculation will remain, though tweaks to address obvious anomalies, such as commissioned 0% APR cases, may be made.
• The requirement for recorded delivery letters may be removed.
• Some firms with transparent dealer to Original Equipment Manufacturer financial services business relationships may be exempt from the “tied financial institution relationship” definition of unfair relationship assessments, if customer communications were clear at the point of sale.

The real test: how firms deliver redress

Motor finance companies’ reputation has already been damaged by the redress scheme, with customer confidence at an all-time low. How firms execute the redress scheme will either recover some lost confidence or make it worse. Ease of opt-in, speed of processing, accuracy of calculations and clarity of communications could influence future customer behaviour.

The industry can expect scrutiny. Claims management companies are poised to highlight failings, so proactive, well-designed redress implementation must form the core of any redress strategy.

Looking ahead: preventing future issues

During the FLA conference, it was made clear that compliance and transparency must remain top priorities well beyond the redress process. Once the current scheme is complete, providers will need strong controls to prevent similar issues in future.

This presents an opportunity for innovation. Technologies such as Recordsure technology can help motor finance firms and their dealer networks maintain consistent, compliant customer interactions. In turn, this will help them deliver the evidence needed for supervisors, the board and the regulator.

The FCA redress scheme defines the outlook for 2026

The FCA redress scheme is the number one agenda item for 2026. Motor finance firms that invest now in data preparation, technology set-up and clear communications will be better placed to handle the current regulatory wave and serve customers as the industry evolves.

At TCC Group, and specifically with the Momenta brand, there are experienced people with many years delivering solutions to help firms execute the proposed redress scheme effectively and at pace. They are ready to assist with preparations and validate existing plans. The work does not stop there; TCC Group works alongside clients to establish processes and solutions that support long-term compliance.