The Financial Conduct Authority has told more than 100 motor finance lenders it is “very concerned” about the industry’s preparedness for its £9bn redress scheme.
The regulator sent letters to firms last Friday following a review of how lenders are planning to implement the controversial redress programme.
“We are very concerned about many firms’ operational readiness to handle complaints,” the FCA wrote in letters seen by City AM.
“A significant number of plans are not yet capable of supporting timely and accurate redress payments,” the watchdog added, raising the stakes for an already embattled industry.
Motor finance lenders are expected to attend a roundtable meeting with the FCA this week, according to people familiar with the matter.
The letters also warned the regulator will publish “examples of good and poor practice in the coming weeks,” signalling public scrutiny is set to intensify.
One industry source acknowledged the uneven footing across the sector, noting that “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.”
Major City lenders including Lloyds (LLOY), Santander and Barclays (BARC) face combined liabilities of as much as £9bn over the use of so-called secret commission arrangements that left consumers unaware of payments made to car dealers.
The Supreme Court handed the industry a partial victory last year but left open the possibility of a redress scheme, finding one claimant’s commission to be outsized.
Final proposals for the industry-wide scheme were published at the end of March and have since faced legal challenges from Mercedes-Benz, Crédit Agricole Auto Finance and Volkswagen.
Mercedes-Benz has set aside £400m to cover potential liabilities, while Volkswagen is yet to make any financial provisions for the matter.
Consumer campaign group Consumer Voice, represented by Courmacs Legal, is also bringing a separate legal challenge against the redress scheme.
The mounting backlash has slowed progress considerably, though the FCA has pledged to “defend [the scheme] robustly” at the Upper Tribunal.
“Preparation is necessary, whether or not the scheme goes ahead,” the FCA said, urging firms not to use legal uncertainty as a reason to delay their operational planning.
“Scheme implementation plans should comprehensively set out firms’ plans for complying with their obligations under the scheme rules. Based on the plans reviewed to date, this is not the case for many firms,” the regulator added.
The FCA’s letter raised specific concerns about the industry’s reliance on underdeveloped systems, insufficient oversight of third-party processes, and inadequately tested automated procedures.
Toby Hall, director of scheme supervision at the FCA, said: “While there is ongoing legal uncertainty, firms should continue preparing for all scenarios. Consumers and markets need confidence that, whatever the outcome, complaints will be handled consistently, efficiently and fairly.”