What the FCA motor finance redress scheme means for collections

Understanding the scheme: A quick recap

The redress scheme targets motor finance agreements between 6 April 2007 and 1 November 2024 where certain commissions with motor finance were not adequately disclosed. These practices have led customers to overpay, creating what the FCA now defines as an "unfair relationship" under the Consumer Credit Act 1974.

Lenders will be responsible for identifying affected customers, calculating redress, and processing payments. Brokers must cooperate, but the operational burden lies with the lenders.

What can we expect?

Surge in customer engagement and queries

Increased complaints and disputes: Customers may challenge the legitimacy of their debt if they believe they were mis-sold. The scheme presumes wide eligibility for certain commission arrangements; customers who previously accepted collections activity may reopen complaints, asking for retrospective reassessment. Complaints teams will see volumes increase, and collections handoffs into complaints will grow.

Requests for refunds or recalculations: Especially where redress leads to lower Annual Percentage Rates (APRs) or commission repayments.

Vulnerability disclosures: Customers may cite financial hardship or mental health issues exacerbated by unfair lending practices. Customers facing arrears often have vulnerabilities; redress communications and court/collections activity can trigger vulnerability disclosures. Collections agents will need to treat more customers as potentially vulnerable and make tailored arrangements.

Engagement with third parties: Claim Management Companies (CMCs) and legal representatives may become more involved, complicating communication and resolution.

Operational disruption

Organisations will need to ensure that their lenders (and any third parties) align with redress protocols, including:

• Pausing collections on disputed accounts.
• Updating customer records with redress outcomes.
• Coordinating with lenders on revised balances and interest recalculations.
• Operational risk: Increased call volumes, inbox/backlog risk, litigation risk from mishandled historic files.
• Capital/provision risk: Organisations will need to revise provisions with the potential for material charges with multiple provisioning scenarios being required.
• Regulatory enforcement risk: The FCA has been clear that organisations need to prepare now for this with 'Dear CEO' communications being sent that make this very clear. Failing to act or put any measures in place to prepare will attract unwarranted attention.
• Reduction in performance and efficiency: Enhanced training for collections agents based on new processes, procedures, systematic changes, and customer interaction perspective. This needs to be considered as a disruption to BAU where teams will need to be briefed and trained accordingly. This will need to be factored into collections performance and operational efficiency such as effective resource planning, and so on.

Proactive measures to get ahead

Audit and segment portfolios: Identify motor finance accounts within the redress scope. Segment by agreement date, commission structure, broker involvement, customer vulnerability indicators. This allows you to prioritise and tailor engagement strategies.

Enhance customer communication: Develop clear messaging to customers to explain in a clear, concise and timely manner: the redress scheme, how it may affect their account, what steps they can take, and what to expect as part of the process. Consider dedicated website signposting, FAQs, and training for frontline staff.

Collaborate across the industry: Establish joint working groups to share data and redress outcomes, align on complaint handling and dispute resolution, and ensure consistent messaging across channels.

Strengthen governance and oversight: Implement robust controls to manage complaint volumes, regulatory reporting, and quality assurance of redress-related interactions. Ensure compliance with Consumer Duty principles, especially around customer understanding and fair outcomes, demonstrating proactive remediation and robust record-keeping to avoid regulatory escalation.

Prepare for data challenges: Many agreements date back over a decade. Ensure data sources are mapped with gaps documented, digitisation of legacy records where possible, and clear data accuracy processes and procedures. Use statistical modelling or sampling where data is incomplete.

Technology must-haves

Technology needs to be flexible to accommodate:

• A central repository of sales documentation (digital + indexed) to allow searchable agreements and collateral.
• A mechanism of customers/accounts in scope to automatically trigger complaint-friendly routing and appropriate workflows based on processes put in place.
• Reporting dashboards showing in-scope balances, accounts in active collections, paused activity, complaint/dispute volumes, and estimated provision exposure.
• Audit trail for any decisions made to pause or continue collection activity.
• Flagging of cases to show a customer/account is part of the redress scheme with appropriate next actions/conversations for agents.

Final practical checklist (do this now!)

Tag every motor finance agreement between 06/04/2007 and 01/11/2024 in your CRM/collections system.

Ensure appropriate analysis is carried out on all cases to remove avoidance of doubt for affected customer agreements.

Pause automated collections activity where an account is the subject of an active complaint or customer request.

Stand up a redress working group (collections + complaints + legal + IT + finance).

Preserve and centralise sales/disclosure evidence.

Create a "redress complaint" disposition code and mandatory fields to capture the nature of the complaint and dates.

Train 100% of frontline agents on new scripts within 7-14 days and set a daily escalation SLA to the redress working group based on KPIs to prioritise complaint handling and vulnerability checks.

Run provision sensitivity analysis with finance with an appropriate account sample size to estimate likely provision impact on collections recoveries (working with finance teams).

Engage your vendors/outsourcers and verify their ability to handle complaints, activity pauses and data requests.

Prepare communications for customers including deceased estates, guarantors, and powers of attorney.

Design and implement appropriate workflows for customers/accounts to follow.

Final thoughts

The FCA Motor Finance Redress Scheme is a sector-wide challenge that directly reshapes the collections landscape and will test the agility, empathy, and operational resilience of lenders and debt collection organisations.

Those who act early, communicate clearly, and collaborate effectively will be best placed to navigate the disruption and support customers through what may be a complex and emotional journey.