Regulations affecting the finance industry are constantly evolving, with bodies like the Financial Conduct Authority (FCA) playing a crucial role in maintaining fair practices. In January 2021, the FCA announced a ban on discretionary commission arrangements (DCAs), which previously allowed brokers and car dealers to adjust the interest rates they offered customers and, as a result, the commission they received. This change came about to protect consumers and bring legacy practices in line with modern standards.
The FCA is now conducting a thorough investigation into these practices, with findings expected to be released in September 2024. With over 1m claims already submitted via Money Saving Expert alone, which is potentially just the tip of the iceberg, it is estimated that billions of pounds of overcharged interest will need to be reimbursed, demanding urgent action from the brokers and car dealers in question.
This article addresses the key details of this investigation, the resulting business challenges, and the benefits of adopting a Managed Service solution to navigate this compliance challenge.
In January 2021, the FCA called a ban on DCAs to stop brokers, including car dealers, from inflating loan interest rates which were being used to manipulate higher commissions. This ban affects vehicles used primarily for personal purposes and includes those financed before 28 January 2021.
Now, the FCA is conducting an investigation into these practices with results expected in late September 2024. This involves looking into the specific nature of the dealings, including who received the commission – whether the dealer or the salesperson – and whether they were intended for the car sale, the financing, or both.
The results of the investigation could lead to a compensation scheme that pays back billions of pounds to affected consumers, which will greatly impact affected credit-lending firms. Complaints lodged after 17 November 2023 will be processed, but resolution details remain unclear until the investigation is complete.
The results of this investigation will demand urgent action from affected firms, who will likely face several business challenges when managing the new requirements.
Many organisations will be processing the claims manually, calling on skilled resources who would otherwise be working on more valuable BAU or transformation activities. Due to the high-volume and labour-intensive nature of claims processing (including detailed examination of records, extensive data mining of both digital and physical records, fees, and criteria), this can have a significant impact on the business.
There are several stages to the claims process that are often subject to change. For example, to date firms are dealing with claims received from customers and assessing their validity. In due course, they will also need to calculate the refunds – taking account of the time value of money perform controlled client outreach and ultimately issue payments. After this, there may then be a need to identify anyone due a refund who has not yet claimed. Many organisations lack a comprehensive strategy and roadmap to guide them through this process.
More often than not, claims processing will involve locating and reviewing physical paper documents, which is time consuming and difficult to track. As a result, there is a critical need to convert these physical files into digital data assets to help streamline the process and manage future activity.
Many organisations have difficulty in locating and accessing legacy data, lacking a robust solution for ongoing capture and management. For example, data being sent to the regulators is often not being reconciled with claims data, which creates a potential downstream disconnect.
A level of uncertainty remains until further FCA guidance in September 2024, but organisations must prepare now for an undertaking of (currently) unknown scale or duration, which has the potential to erupt like we have seen before with PPI.
With many challenges to consider, it is crucial to have a flexible and targeted approach that adapts to changing priorities and addresses both regulatory priorities and business challenges. Here is why a Managed Service model could be the most effective solution for your business.
A Managed Service helps reduce operational costs by streamlining processes and leveraging the expertise of external specialists, reducing the need for in-house hiring, staffing, training, and ongoing management expenses.
Managed Services allow firms to easily, and in a controlled manner, scale their operations up or down based on current business requirements, without the need to invest heavily in permanent resources or infrastructure.
Managed Services can inject valuable knowledge and industry experience into a business that can be costly and impractical to develop internally. There is also the ‘option-to-hire’ model for certain staff, ensuring operational and knowledge continuity.
By using Managed Services, organisations can focus their internal staff on important core business activities that deliver transformation and customer experience, taking the strain off resource allocation for less revenue-generating tasks.
A Managed Service solution can help mitigate risks by ensuring that critical functions are handled by experts with the skills to anticipate, identify, and respond to potential issues swiftly.
The Projective Group Managed Service model is designed to address resource, data, and compliance challenges and is tailored to our clients’ individual requirements. As well as drawing on our deep knowledge of the regulatory landscape, we use our expertise in data solutions to build processes and recommend system optimisations, including the use of AI.
As such, we deliver significant risk reduction, improved financial flexibility, and increased efficiency, operating with clearly defined frameworks and an established quality-assurance approach. This support has been proven to help our clients enhance their operational capabilities so that they can focus on core business growth and innovation.
The FCA’s investigation into motor finance mis-selling serves as a prime example of how regulatory compliance can pose sudden and significant challenges for the Financial Services industry. Adopting a Managed Service solution can help firms navigate these challenges and manage transitions effectively, ensuring cost efficiency, scalability, and risk mitigation.
With extensive experience in previous mis-selling compensation schemes and a proven track record of delivering successful compliance programmes, we are a reliable partner to support your business through this complex regulatory landscape, allowing you to concentrate on core business activities and maintain a competitive edge.
For more information or advice on motor finance mis-selling and Managed Services, get in touch with our team today.
Established in 2006, Projective Group is a leading Financial Services change specialist.
We are recognised within the industry as a complete solutions provider, partnering with clients in Financial Services to provide resolutions that are both holistic and pragmatic. We have evolved to become a trusted partner for companies that want to thrive and prosper in an ever-changing Financial Services landscape.
