Look Back – Understanding your Exposure and Next Steps to Remediation

DATE

May 21st 2024

Look Forward – don’t fall into the same traps as previous failed remediation programmes

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Over the last month, we have been sharing our perspective and insights into the Motor Finance Scandal investigation, looking into historic discretionary commission agreements (DCAs) on car loans, launched by the FCA in January of this year.

Firms need to be thinking about how they plan to tackle the key issues around securing funds for potential pay-outs now. Advice has repeatedly been issued to motor finance firms to secure significant sums of money for potential pay outs (1), and the continued media coverage, including consumer money saving forums urging readers to use their free calculators to understand if they could make a compensation claim (2), is driving up consumer interest and awareness.

In our previous post, we explored some immediate next steps that would help firms to prepare and ensure they have the required infrastructure, arrangements and plans in place in preparation for the FCA’s communication in September.

Below, we propose the setup up of an appropriate, overarching remediation programme, as well as the next steps that firms will need to take to understand their exposures.

Whilst the FCA has only engaged a small number of firms to provide data at this time in the investigation, they have been clear in their ask of firms to proactively examine their own specific circumstances; a task that should not be underestimated.

Failure to do this in a structured way could result in firms not being able to readily evidence they have kept adequate data records, therefore, signalling to the FCA that they may not have treated customers fairly and opening firms up to increased regulatory scrutiny, operational disruption, and potential reputational implications.

Next steps for your organisation

1. Govern:

Firms need to treat this as a major remediation programme, and plan for any additional operational costs from increased complaints volumes, as well as redress costs (3). Adapting your relevant governance forums to facilitate pragmatic decision making, resolve conflicts and manage escalations will support your firm to efficiently address these matters.

2. Assess:

Review adequacy of your current policies, processes and controls for product development and distribution.
Review your financing agreements for the applicable period to identify application of DCAs or instances where interest rates were adjusted to assess potential exposure.
Perform an assessment of your available data to understand integrity and completeness of data records on legacy systems. Use of data tools and analytics will help you to ensure data consistency and accuracy.
Perform calculations to consider any overpaid interest, commissions, and any additional relevant interests on your affected customer accounts to forecast and prepare for potential compensation pay-outs.
Review your financial resources to ensure adequate allocation is maintained at all times. At a minimum, you should hold provisions for any potential additional operational costs from the handling of increased complaint volumes, and where applicable, the cost of resolving them.
Review of your capability and capacity to address programme requirements as needs shift throughout the programme.

3. Remediate:

Update and refresh your current governance arrangements, policies, processes and controls to ensure they are fit for purpose.
Revise your commission arrangements in place with other parties to resolve any identified conflicts of interest.
Consider the management of your supply chain, reviewing the current contracts in place with brokers.
Pay close attention to identifiable patterns of incorrect rejections for valid complaints, as this could result in increased risk to you.
Recognise that retrieving the data for historical contracts at the detailed customer level is a significant undertaking and has been cited as a key blocker to progress in the investigation in the FCA’s latest communication (4).

4. Communicate:

Set up clear internal and external communications to customers and brokers ensuring your publications are fair, clear and are not mis-leading for customers throughout the process.

How we can help

Moorhouse has significant expertise in this area and would be happy to discuss any aspect of it with you. If you’d like to discuss this, one of our Regulatory Experts will be happy to have a chat with you.

Get in touch

To continue our support in addressing this ask, next in the series, we’ll be looking at how to avoid the challenges of historical failed remediation programmes.