Motor finance lenders should continue strengthening their redress preparations despite the ongoing legal challenges to the FCA’s compensation scheme, leading banking and credit advisory firm Broadstone has warned ahead of a.n Upper Tribunal hearing next week
A case management hearing is scheduled for Monday 5 and Tuesday 6 October which is expected to consider disclosure, expert evidence and wider case management issues. It should also provide greater clarity over whether the main hearing into challenges against the FCA’s motor finance redress scheme will take place in December 2026 or February 2027.
The FCA’s industry-wide redress scheme is currently partially suspended following legal challenges from four parties over issues including the scope of the scheme, causation of loss, the proposed redress methodology and compensatory interest.
However, the regulator has continued to stress that firms should prepare for implementation. In August, the FCA published feedback on lenders’ implementation plans identifying areas where further work was required, including operational readiness, population identification, redress calculations and quality assurance.
Broadstone warns that lenders which wait until the legal position is fully resolved could face significantly compressed implementation timescales once the final shape of the scheme becomes clear.
Harry Charalambous, Principal of Credit Risk at banking and credit advisory consultancy Broadstone, commented:
“The Upper Tribunal hearing is an important milestone and should provide greater clarity on the direction and timetable of the legal challenges, but lenders should not consider ongoing uncertainty to be a reason for putting preparations on hold.
“The FCA has been clear that firms still need to maintain momentum, and the practical challenges involved in delivering redress will not disappear if the scheme changes. Historic data gaps, legacy systems, identifying the right customer population and building robust calculation and quality assurance processes all take time to address.
“Lenders should therefore be using this period to get the foundations right. Validated data, tested calculation engines, clear audit trails and strong governance frameworks can all be adapted far more quickly to a change in methodology than they can be built from scratch.
“The risk for firms that wait for complete legal certainty is that they find themselves trying to resolve years of data and operational complexity against a much shorter implementation deadline.
“Whatever emerges from the legal process, firms that have done the groundwork now will be in a much stronger position to deliver fair, consistent and defensible customer outcomes when the final requirements are known.”
Broadstone is supporting motor finance lenders with redress calculator development, contingency approaches for alternative outcomes and independent assurance of in-house calculation methodologies.
