The complexities of redress schemes for secured and unsecured lenders
As highlighted by its recent intervention in the mortgage market and its ongoing scrutiny of the wide-ranging consumer credit market, the FCA continues to apply stringent requirements on firms when customers have suffered detriment. Whether it is as simple as one incorrectly charged fee, or as complicated as miscalculations of monthly instalments throughout the term of a loan account, loan remediation exercises are often highly complex.
Across both the secured and unsecured lending sectors, we have seen an upward trend in the number of issues discovered, which may ultimately require account reconstitution exercises in order to identify and remedy customer detriment.
These reconstitution exercises can be incredibly complex even for seemingly basic breaches and require a thorough understanding of current and historic loan systems, business practices and products. In many cases, the reconstitution can involve a complete re-writing of the loan account history and a review of all manual and automated decisions and transactions on the account to ensure that customers have been treated fairly. Beyond the technical challenges, loan remediation exercises affect a wide range of firms’ operational units and require extensive input from senior personnel.
The following report highlights some of the key considerations for firms embarking on a loan remediation exercise. We consider that gaining a thorough understanding of the customer journey, taking action to limit future detriment and running an effective pilot exercise are critical factors to the success of a loan remediation project. We have also delved into the intricacies of loan remediation and specifically the challenges of account reconstitution by asking a series of thought-provoking questions in four key areas: data, calculation methodology, consequential loss and customer contact.
The delivery of a loan remediation project is a challenging undertaking. Suitable planning and skill is required to deliver it cost effectively, efficiently, to regulatory standards and deadlines and to ensure that affected customers ultimately receive the right outcome.
If you have any queries, or want any further information, please contact Darren Castle, Rob Arthur or Alex Ellerton.
For a more general look at remediation exercises not specific to lenders please see our Past business reviews: making a success out of redress report.