Introduction:

In an ever-changing regulatory landscape, the spotlight has recently turned towards Discretionary Commission Arrangements (DCAs) within the motor finance sector. As the Financial Conduct Authority (FCA) sharpens its focus on historic arrangements, the industry stands awaiting further news. The potential for widespread implications on practices, compliance, and customer trust is significant. It’s a moment that calls for clarity, insight, and actionable guidance. 

This document is designed as a companion to our video (below) on the same topic, offering guidance, information and actionable strategies for those affected by the recent news. Within this article, you’ll find all of our video’s core messages, formatted for quick reference and deep reflection.

We aim to arm you with the knowledge and tools necessary to navigate this regulatory review with confidence. Whether you are a C-suite executive seeking to steer your organisation through these changing tides or a professional aiming to deepen your understanding of DCAs within motor finance, this document is for you.

Let’s look back at a brief reminder of the FCA’s Motor Finance Scrutiny.

In January 2021, the FCA banned ‘discretionary commission arrangements’ also known as DCAs.

The ban drove a spike in both complaints and DSARs (Data Subject Access Requests) relating to historic DCAs with the majority rejected by firms. This raised significant concern with the FCA, who – on the 11th of January this year – announced its intention to review past agreements to see if there was widespread misconduct and if customers have suffered harm as a result.

We’re using our powers under s166 of the Financial Services and Markets Act 2000, to review sales of historical motor finance commission arrangements across several firms.

– Financial Conduct Authority (FCA)

But what does this mean for firms?

Here are 3 key actions that we’re advising firms to take right now.

1: Respond to the Spike.

Whilst the industry has seen an increase in complaints and DSAR volumes, we expect a significant proportion will not require redress because we anticipate a high degree of scatter from consumers and Claims Management Companies (CMCs) making complaints without really understanding eligibility.

Nevertheless, we advise that a well-defined and optimised process will help ensure you have sufficient operational capacity to respond to these complaints in line with dispute resolution (DISP) timescales.

Whilst the deadline for providing final responses has been extended, acknowledging receipt of a complaint and responding to DSARs remains a key requirement.

Most importantly, make sure you have the controls and data platforms to capture where and when a complaint has been made to save time and effort for yourself and the customer downstream.

Finally, don’t underestimate the operational time drain in responding to DSARs, consider additional interim support or transcription platforms to help meet the new demand.

2: Assess Your Exposure.

Create an analytical view of exposure across your backbook and understand where, when and in what size you may have created risk. This could go back to 2007, so model out your full exposure for each year.

Create risk-based cohorts – think of this as segmentation of the entire population based on risk – it will most likely be based on value but equally, factor in where you know customers have vulnerability or where you’ve taken recovery action against particular customers. This will help you respond better, more sensitively and more efficiently later in the year.

You can then cross-reference your cohorts with other risk populations including customers in arrears, shortfall or recoveries. Whilst we do not yet have clarity from the FCA, it is likely that set-off will be an option, and this cross reference will help you model your true exposure.

3: Plan Your Scenarios.

If the FCA decide this should be an industry-led mass-scale proactive redress scheme – think about how will you execute it: Who will lead it, how will you operationalise it, how robust are your contact records, what channels do you have available, and can you automate?

If it’s consumer-led – what platforms do you have to manage cases, how equipped are your operational teams to respond, what contingency plans do you have, and how effective are your remediation processes and controls?

Planning is the key here, and when the FCA publishes their findings, unlike the creeping death of PPI, this one is likely to go hard and fast.

What else could (or should) you be thinking about?

It’s not the time to panic: Despite every consultancy and resource provider posting content urging you to sign up with them now, let’s maintain some focus:

The industry is experienced in delivering remediation programmes like this, even at this scale, And the FCA have not reached their conclusions and decisions yet, therefore lenders and brokers also don’t need to reach decisions yet in terms of resolution.

The other thing to say is that when we know more, there are excellent in-house and external support teams available, so the message is, not to panic.

If you’re looking to engage support, our message is to engage the right partners: Look wider than the large firms. You will pay significantly more to engage larger firms and their logo no longer provides the protection it once did.

Several expert teams are operating within more specialist consultancies. Practitioner-led teams, who have the hands-on experience required in leading programmes like this operationally.

Carefully consider your resource plans: We are aware that some of the larger firms are looking offshore to deliver their remediation programmes, this has its advantages and limitations. 

Ensure the resourcing decisions you make de-risk the situation, and not exacerbate it. We’ve seen so many examples of individuals who apply to work with us following programmes with reputable firms, who simply do not pass our vetting, and we’ve seen deep threads of plagiarised CVs which have escaped the attention of many other firms.

Our message: Find and use reputable, trusted and credible sources.

One last thing on resourcing – consider scalability. Invariably a proportion of claims are going to turn into complex claims requiring a more forensic review and dispute resolution. Avoid the trap of thinking these will all be short, sharp and straightforward. So construct your resource plans accordingly.

We’re here to help: At Map Room, we believe in building long-lasting relationships with our clients based on mutual trust and shared success. We understand the complexities and challenges facing the motor finance industry, especially in light of recent regulatory scrutiny, and if needed, we’re ready to work with you to help overcome any uncertainty.

If you need support or have questions, please get in touch. 

We’re here to help.