The Financial Conduct Authority (FCA) has issued a stark warning to motor finance lenders over their readiness to handle the upcoming £9 billion compensation scheme, with industry insiders admitting they are "very concerned" about the scale of the operation.
The regulator sent letters to more than 100 companies last Friday after reviewing their operational plans for implementing the controversial redress programme. The correspondence, seen by City AM, states: "We are very concerned about many firms' operational readiness to handle complaints. A significant number of plans are not yet capable of supporting timely and accurate redress payments."
Roundtable Talks Amid Compensation Dispute
Motor finance providers are scheduled to attend a roundtable discussion with the watchdog this week as the compensation dispute continues, according to sources close to the matter. The FCA has confirmed that eligible claimants will receive an average of £830, though the amount will vary, with some receiving more and others less.
The regulator added that it will release "examples of good and poor practice in the coming weeks" to guide lenders through the process.
Industry Readiness Concerns
One industry insider highlighted disparities in preparedness: "Banks have past experience of mass redress schemes and have done those exercises on a large scale before... but for some manufacturers it will be their first time and they will need to industrialise the process very quickly."
The FCA estimates the total scheme will cost lenders and banks around £9.1 billion, with millions of drivers expected to receive an average of £829 per agreement. Alex Neill, co-founder of the consumer rights organisation, previously warned that "getting it wrong now would mean underpayment for millions of people to the tune of billions of pounds."
Legal Challenges and Contingency Planning
The FCA has defended the scheme's legality, stating: "We will defend the scheme robustly as lawful and the best way to resolve such a widespread, long running and complex issue. These legal challenges create fresh uncertainty for millions of consumers and for the second largest consumer credit market."
Article continues below. The FCA said it is "engaging at pace" with lenders and consumer groups to understand all perspectives as it considers next steps, including "contingency planning."
FCA's Pragmatic Approach
The regulator added: "We welcome the broad support for the scheme and the commitment from most lenders to implement it. The final scheme is fair to consumers and proportionate for firms. [Lenders] have taken a pragmatic approach recognising that introducing a scheme on this scale promptly has required us to make judgments to simplify in a reasonable and lawful way some complex legal and operational issues. Alternative approaches would be slower and much more costly for firms."
