The City watchdog has warned motor finance lenders it is “very concerned” with how prepared the industry is to implement its £9bn redress scheme, City AM can reveal. 

The Financial Conduct Authority (FCA) fired out letters to over 100 firms last Friday following a review of the sector’s plans to implement its under-fire redress program.

“We are very concerned about many firms’ operational readiness to handle complaints,” the regulator wrote in letters seen by City AM. 

“A significant number of plans are not yet capable of supporting timely and accurate redress payments”.

Motor finance lenders will this week attend a roundtable talk with the watchdog as the redress row continues, according to people familiar with the matter.

Watchdog to publish examples of good and bad practice 

The letter warns it will publish “examples of good and poor practice in the coming weeks”. 

One industry source pushed back 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”.

City lenders – including Lloyds, Santander and Barclays – are on the hook for as much as £9bn in the scheme, which concerns the use of ‘secret’ commission dealers that left consumers in the dark. 

The Supreme Court handed the industry a lukewarm win last year, but left the door ajar to a redress scheme, finding one claimants commission to be outsized.

FCA calls out motor finance lenders for falling short

The final proposals for the industry-wide redress scheme were published at the end of March and faced challenges from Mercedes-Benz, Crédit Agricole Auto Finance and Volkswagen.

Mercedes has so far set aside £400m for the debacle, whilst Volkswagen is yet to make any provisions. 

Customer campaign group Consumer Voice is also bringing forward a challenge to the redress scheme, which is represented by Courmacs Legal.

The mounting backlash has led to progress stalling, with the FCA pledging “defend [the scheme] robustly” at the Upper Tribunal.

“Preparation is necessary, whether or not the scheme goes ahead,” the FCA said.  

“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 letter drew concerns on the industry’s reliance on underdeveloped systems and processes as well as insufficient oversight of third-party or automated processes.

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.”