The Financial Conduct Authority (FCA) has set out new expectations for motor finance lenders choosing to make voluntary compensation offers to customers while legal challenges to its motor finance redress scheme remain ongoing.
Published on the 3rd of November, the guidance aims to ensure that customers receive fair treatment and have sufficient information to make informed decisions about whether to accept an early settlement offer or wait for the outcome of the legal proceedings.
Early settlement offers
The FCA has confirmed that it supports lenders making early settlement offers, provided customers are offered no less than the maximum compensation they would be entitled to under the FCA’s redress scheme.
This provides an opportunity for some consumers to receive compensation sooner, rather than waiting for the legal challenges to conclude. However, accepting an offer is entirely voluntary and customers must be given the option to reject it and wait for their complaint to be dealt with under the scheme.
The FCA’s research found that 89% of customers who had complained, or were considering complaining, wanted the option of receiving an offer now rather than waiting for the legal process to conclude.
What must firms communicate to customers?
The FCA has outlined minimum expectations for the information accompanying settlement offers. Firms must ensure communications are clear, fair and not misleading, allowing customers to understand the implications of accepting an offer.
In particular, customers must be made aware that:
- Offers must be at least equal to the maximum redress available under the FCA scheme.
- Accepting an offer means entering into a full and final settlement of the relevant complaint.
- Customers will retain the payment received, even if the legal challenge subsequently results in a lower compensation entitlement.
- Equally, customers cannot seek additional compensation later if the outcome of the legal challenge would otherwise have resulted in a higher payment.
- Settlement offers cannot be referred to the Financial Ombudsman Service (FOS) for review.
Firms must also provide the FCA’s consumer factsheet alongside their offer and allow customers at least one month to respond.
Where complaints involve both scheme-related and non-scheme issues, firms must clearly explain which elements are covered by the settlement and how any outstanding matters will be addressed.
What happens next?
The legal challenges to the FCA’s motor finance redress scheme are scheduled to be heard between 16 February and 3 March 2027. In the meantime, the partial suspension remains in place, meaning firms must continue preparing for the scheme and progressing complaints as far as possible.
Firms intending to make voluntary settlement offers are expected to notify the FCA in advance.
The latest announcement provides further clarity on the FCA’s expectations around early settlements, particularly the importance of transparency, accurate redress calculations and ensuring customers understand the consequences of accepting an offer.
For firms operating as Appointed Representatives (ARs), the FCA’s guidance also highlights the importance of ensuring that any customer communications relating to motor finance complaints are consistent with the regulatory requirements and approach to redress.
