The impending Supreme Court decision and the Financial Conduct Authority’s (FCA) redress scheme are set to reshape the motor finance landscape. The effective management of commission compensation will hinge on exceptional customer service and the streamlined efficiency that only a high degree of automation can provide.
Here are four critical steps to help motor finance providers ensure their organisations are ready:
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1. Master data ingestion and normalisation
The first, and arguably most crucial, step is to gain complete control over historical data. Finance companies face significant hurdles with data completeness and accessibility from years past. Advanced analytics and risk assessment capabilities will, therefore, be critical to help make sense of deep historical data sets. This involves ingesting and normalising vast amounts of historical lending data, including loan agreements, commission records (discretionary/non-discretionary, commission applied/not) and past customer interactions.
The goal should be to accurately verify the legitimacy of claims and determine customer eligibility. This includes confirming whether a commission payment was made to the retailer, understanding the loan details, and specifically, the type and amount of commission paid. Not every finance agreement included a commission, and commission rates varied (e.g., lower on new cars than used).
By centralising and normalising this data, lenders can more accurately assess potential liabilities and identify specific customer segments most likely to file complaints based on their historical finance agreements and commission structures. This foundational step is paramount to calculating accurate compensation allocations.
2. Automate assignment of correct payout to each claim
With a clear understanding of the data, the second step will be to automate the assignment of payouts. The evolving regulatory guidance from the FCA and the eventual Supreme Court decision mean that the precise calculations for redress are currently still fluid. This dynamic environment demands extreme flexibility in operational processes.
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By GlobalDataA powerful business rules management system could play a key part in managing this process. It should empower business teams to implement and rapidly adjust business rules to reflect new regulatory guidelines without heavy reliance on IT or external professional services to make changes to rules and decision strategies. This user-controlled autonomy means that once the FCA clarifies the redress methodology (e.g., whether the payout is the commission paid to the retailer compounded over time), lenders can quickly configure their systems to automate these complex calculations.
This automation is vital to efficiently handle the surge in claims that many motor finance providers are already experiencing; and which are likely to increase significantly once the Supreme Court decision is delivered. It should prevent the need for manual, case-by-case reviews and enable accurate allocation of hundreds of millions of pounds in potential payouts.
3. Personalise consumer communications
The expected surge in complaints post-ruling will also put immense pressure on customer service teams and inevitably impact customer experience, brand loyalty and potentially increase churn across the whole business, not just those who believe they have a claim. Effective, individualised consumer communication will be key to managing this challenge.
Proven customer communication and engagement solutions already developed for the financial services space should be able to facilitate clear, consistent and compliant communication with affected customers across various channels, including voice, SMS, mobile applications, email, social media and other channels. Leveraging strong data analytics, lenders should be able to identify the right channel and the right message for each customer.
This is crucial for managing expectations, providing timely updates on redress schemes, and proactively reaching out to eligible customers. If, as expected, the ruling leads to a 404 redress scheme, the onus will be on finance companies to proactively contact affected customers, making automated, two-way communication capabilities essential. By automating mass communications, valuable FTE resources can be re-deployed to focus on more complex cases, rather than being overwhelmed by volume. This focus on a seamless digital experience is paramount to maintaining customer experience and reducing churn.
4. Bolster fraud protection
Finally – and perhaps most important – in the context of this issue, is the likelihood of increased fraud risk. The activity around commission compensation will inevitably lead to a rise in fraudulent claims and lenders will need to be equipped to validate legitimate claims and identify suspicious ones effectively.
Robust fraud protection capabilities need to be factored into the planning and preparation process. For example, through network and link analysis, connections between seemingly disparate claims could be uncovered, helping to identify organised fraud rings or individuals attempting to submit multiple claims through different channels or identities. This will also help to flag “speculative claims” – those submitted without real basis, perhaps encouraged by Claims Management Companies, differentiating them from genuine grievances. By integrating third-party identity verification services, claimant identities can be verified as legitimate and that they are indeed the individuals who entered into the original finance agreements, preventing claims from stolen or synthetic identities.
The motor finance sector is, unquestionably, facing one of the most challenging periods in its history. Yet, as a key component of the UK economy, it is vital that it can continue to support clients and deliver services to keep motorists on the road. Preparing for the volume of claims that many providers have already provisioned for will be critical to achieve this.
Andrew Williams is Senior Director, Non-Banking Industries for FICO
