The Financial Conduct Authority proposes a redress scheme for UK motor finance customers who were unfairly charged due to inadequate commission disclosure. The scheme covers agreements from 2007 to 2024, targeting breaches like Discretionary Commission Arrangements. Lenders face accounting implications, with provisions required under UK GAAP FRS 102. Firms must assess and provision for redress, impacting going concern status and future cash flows.

The FCA’s redress scheme offers clarity for lenders, allowing for meaningful provisions. Lenders must assess impacted customers and make provisions using the proposed redress methodology. This provision may affect going concern status, cash flows, and profit. Disclosure requirements include a reconciliation of the provision value and details about expected outflows and uncertainties.

Affected firms face challenges with the redress scheme, including data access and payment timelines. The scheme has four stages: Identification, Assessment, Calculation, and Final determination. Firms must identify potential redress cases, assess liability, calculate redress, and make final payments within set timeframes. Preparation is crucial due to the scheme’s complexity and potential consumer impact.

The proposed redress scheme aims to provide greater certainty to lenders, allowing for provision recognition or adjustments. Given the potential consumer impact and challenging timelines, firms should start preparing now. Significant modifications to the scheme are unlikely, and early preparation is vital. The FCA’s comprehensive understanding of the market reduces the likelihood of judicial intervention.

Read more at Yahoo Finance: What lenders must do now