The Financial Conduct Authority and the Financial Ombudsman Service have issued a call for input for views on how to revamp consumer compensation schemes that involve finance firms.
The move follows Chancellor Rachel Reeves speech Mansion House speech last night where she said the current “approach to redress can cause uncertainty and be a drag on investment” for companies.
She said the government had “worked closely” with the two bodies to develop a new agreement, which seeks “to significantly improve the rules governing how the service operates”.
The call is open to industry, thinktanks and consumer groups and has a 30 January deadline.
The regulators say: “The current redress framework works well for individual customer complaints about specific issues.
“However, challenges can occur when there are large numbers of complaints about the same issue, we describe these as mass redress events”.
“These challenges can be compounded if firms do not identify issues early or do not proactively address harm where it occurs.”
The bodies say they want to better understand:
- How the current framework could be modernised
- The problems that mass redress events and the redress scheme in general cause firms and consumers
- What changes the bodies could make to the redress framework to enable us to better identify and manage mass redress events
- What changes could be made to how the bodies work together to ensure their views on regulatory requirements are consistent
The most famous mass redress event in UK corporate history is the payment protection insurance scandal that cost banks around £50bn, after selling millions of customers needless insurance they bought alongside personal loans.
Problems around the product first came to light in the early 1990s, but took over two decades to resolve.
Last month consumer groups won a landmark car finance misselling court of appeal case that may see lenders forced to pay billions of pounds in compensation to borrowers, which could be the biggest mass redress event since the payment protection insurance scandal.
That test case found it was unlawful for lenders to have paid commissions to car dealers without the borrowers’ knowledge.
Since that case banks have been weighing up their potential liabilities.
Broadstone head of redress Brian Nimmo says: “The Financial Conduct Authority and the Financial Ombudsman Service are looking for ways to modernise the redress framework for mass redress events, as we have seen in several high-profile cases such as payment protection insurance, with the current motor finance investigation possibly forming another such example.
Nimmo adds: “A more effective framework for mass redress events would not only benefit consumers in getting timely compensation but also help firms minimise costs, for example by reducing interest payments on payouts and resolving issues faster to avoid them turning into mass events.”
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