The motor finance redress scheme encompasses loan agreements stretching back to 2007, with the FCA estimating people will be able to claim compensation on 12.1 million loans. That’s a lot of data to sift through.
This guide explains how the redress scheme could affect your dealership and the practical steps you should take now to mitigate the impact on your business.
What is the motor finance redress scheme?
The Financial Conduct Authority has now set out the motor finance redress scheme in PS26/3.
Consumers may be eligible for redress if they entered into an agreement between 6 April 2007 and 1 November 2024 and were not given clear information about commission arrangements.
This includes Discretionary Commission Arrangements, where brokers could influence interest rates, as well as other commission structures where disclosure was unclear or insufficient.
The FCA estimates around 12.1 million agreements fall within scope. Lenders will need to identify affected customers, contact them, assess eligibility, and issue redress.
The impact extends beyond the estimated £10billion financial liability. There’s an enormous administrative burden (and therefore cost) involved in digging through historical loan agreements, contacting millions of consumers, and processing relevant data.
And some of that burden is likely to head your way.
How does the FCA motor finance redress scheme affect dealers?
The majority of the burden is likely to fall on lenders, but in practice lenders may turn to third parties such as dealers to help fill data gaps.
With the scheme’s remit stretching back to 2007, there are bound to be gaps in lenders’ records. Where they’re missing information, they’ll be coming to you to help fill in the gaps.
That may sound manageable. But there are two problems:
1. The challenges of legacy data management
2. The scale of the requests you’ll be facing.
The challenges of legacy data management
We’re talking about records that were created up to 19 years ago. Formats, processes, staff and systems will all have changed in that time. Busy teams will have let best practice slip. And your data will have slid into the gaps.
- Multiple formats:Your data is likely spread over multiple locations. Paper files in boxes. Archives trapped on CDs, floppy disks, and even ZIP drives. And digital records in current systems.
- Inconsistent practices:Different branches start handling things differently. Staff leave, and the replacements archive documents slightly differently. Data is duplicated, improperly or inconsistently archived. And, before you know it, a search doesn’t bring up everything it should.
- Mergers and acquisitions:These can result in multiple sets of records with entirely different archiving systems, metadata structures, and retrieval processes.
- System changes:Have you changed any systems since 2007? Was all of your historical data migrated into the new system, or was some of it left in an archive somewhere?
- Record destruction:Retention policies designed to keep you compliant may have led you to dispose of records now needed for the redress scheme.
Overcoming each of these challenges for a single customer record would be a headache. But lenders are likely to give you a monstrous migraine. This is where managing legacy data effectively comes in.
Lenders will request information in bulk
The sheer scale of the motor redress scheme means you won’t be facing one or two requests. You could be facing hundreds or thousands.
Lenders will try to operate as efficiently as possible, handling tasks in bulk. If a lender asked you for 500 customer records tomorrow, could you dredge through all those legacy archive challenges within what’s likely to be a short time-frame.
And the first batch probably won’t be the last; more agreements will come out of the woodwork as time goes on. You could find yourself facing an uneven flow of requests of uneven volume, each with its own deadline, each dragging on your processes and impacting your day-to-day business.
Lenders will need decision-ready data
The sheer scale of the car finance claims redress scheme means sorting through your legacy data will disrupt workflows and risk a regulatory smack on the wrist for being too slow.
And those same regulators won’t look kindly on those causing the delay either.
That means you can’t simply foist the original files on the lender and let them sort it out. You need to provide decision-ready data via a digital platform that integrates with the lenders’ own systems.
The FCA will be watching
The scope and impact of this car finance compensation scheme mean the FCA will keep a close eye on proceedings. So lenders looking to keep their noses clean will demand the highest standards from dealers. But regulatory scrutiny will also extend to dealers if operations aren’t meeting regulatory requirements. You may also need to demonstrate compliance efforts to claim redress operations costs from the scheme.
In a nutshell
This leaves dealers facing three challenges:
1. Getting data-ready with timely access to their information
2. Creating an ability to deliver decision-ready data to lenders
3. Keeping everything squeaky-clean compliant for regulatory scrutiny
How should dealers prepare for the redress scheme?
Start by assessing the customer information you hold, where you hold it, how you access it, and whether you can get your hands on it when you need to. Can your archives and processes stand up to the demands the redress scheme will place upon them?
Lenders could ask you to find information related to particular customers, branches, time frames, or staff members. Does your current retrieval process bring back all the data you expect within acceptable timeframes? Or are records missing the metadata to find everything you need quickly and easily?
Once you’ve got all the information in your hands, can you distil it into decision-ready data?
This includes everything from digitising paper records to a content management system that can host and provide quick, straightforward access for the lender (and a regulator can see is fit for purpose).
Can you create and host a digital record with the sort of metadata a lender will need? Are paper files scanned as images, or do you have tools to turn them into digital files? Test your processes and see how data-ready you are.
With scrutiny a certainty, make sure regulators have nothing to moan about.
Storage: What security do you have in place? Are records protected from environmental factors that degrade paper- and disc-based information?
Access: Clear access policies show the regulator who can access what and why. Secure access controls mean only authorised staff can get to sensitive information.
Audit trails: Could you see who has done what with a record and when? If someone retrieves a record, do you lose sight of it?
Sharing security: Moving information from one place to another creates opportunities for bad actors; intercepting data can be a lot easier than breaking into a vault.
Destruction: If relevant records were destroyed, can you tell regulators what was destroyed and why?
Don’t forget third parties. Make sure they have the necessary certifications and accreditations. Are they FSQS-certified? Do they have information security accreditation? Does data processing take place entirely in the UK? You don’t want a partner or supplier to be the reason you’re exposed to non-compliance consequences.
Where you’ve found gaps in your systems, processes, or compliance, decide how to remedy them.
This can sometimes be simple: update a policy, import an archive into your new system, or upgrade physical security on paper files.
Sometimes plugging a gap requires more work. Choosing and setting up an information management platform. Finding and implementing digitisation tools. Finding a better place to store information. At some point, you need to decide if having your own staff do this is worth the investment or if you’re better off finding a trusted partner to do this for you.
Speaking of which…
Restore Information Management has whatever answer you need
Because we’ve spent 30 years building the UK-wide network of facilities and services you need to fulfil your obligations under the redress scheme.
The flexibility you need
Whether you want an end-to-end solution or to simply plug a gap or two in your processes, we can supply as much support as you need.
Expertise on tap
With a proven track record of working with UK government and FCA-regulated organisations, we can help guide you through the approach that’s best for your business and your customers, too.
Scale and stability
Our UK-wide network of facilities, physical and digital (phygital!) nationwide infrastructure, and experienced operational teams can reliably support you at any scale.
Compliance made simple
We’re a GDPR-compliant, FSQS-certified supplier with more accreditations than you can shake a regulator at, from ISO 27001 to BS 10008, Cyber Essentials Plus to ISO 22301. And we manage all our customers’ data within the UK, protecting your information to the highest national standards.
Fast and agile
If Information wasn’t our middle name, it would be speed. We’re fast to onboard, fast to deploy, and fast to deliver your information where you need it, when you need it.
Automated efficiency
We’ve built intelligent workflows to automate the processes that deliver decision-ready data. That saves you time and money and frees up your clever clogs for what they do best.
Taking the weight off your shoulders
We’ve got the systems, processes, and infrastructures to help you get data-ready for the redress scheme. Our motor finance experts are always ready to take ownership of your problems, deliver prompt solutions, and help reduce the impact of the scheme on your business. Get in touch with your questions, or ask them to start helping you prepare.