Lenders mull early motor finance settlements

A substantial majority 9 out of 10 (89%) car finance customers who have complained or are considering doing so about car finance mis-selling are prepared to take compensation calculated by lenders now rather than wait to find out the details of the Financial Conduct Authority industry-wide redress scheme.

FCA research based on a survey of 1,000 motor finance customers found 86% would be comfortable making the decision, while 61% said they would accept an offer in line with the scheme.

The regulator supports lenders making settlement offers, as long as customers are offered no less than they would receive through its proposed scheme, which is currently paused pending a legal challenge at the Upper Tribunal.

Barclay Partner Finance has confirmed it will be making offers, and the FCA has published its expectations for other lenders who wish to do so.

Stephen Braviner Roman, the FCA’s general counsel and co-lead on the motor finance project, said: “Fair settlement offers could result in some people getting money sooner. And it’s clear they want the choice.

“Anyone who wants to wait can, and there’s no obligation to agree to the offer. We’ll closely monitor firms making offers and expect them to be clear what accepting an offer means.”

The FCA said any lender making a settlement offer will need to be clear with people about what accepting any offer means. This includes that they will keep any money received, even if the outcome of the legal challenges means they would have received less. However, they also would not be able to claim more later if the outcome of the legal challenge means they would have been paid more.

As consumers can reject an offer and leave their claim to be dealt with under the scheme, these offers cannot be referred to the Financial Ombudsman Service for review

In a statement the Finance & Leasing Association (FLA) said: “Where firms believe they can make settlement offers that provide consumers with no less than they would receive under the FCA’s redress scheme, it is understandable that they may choose to make settlement offers before the legal process has concluded.

“The FLA welcomes consumers receiving compensation as soon as possible in such circumstances.”

However, the industry body cautioned that “settlement in some cases does not remove the dilemma facing lenders”, pointing out that delaying payments until the legal issues are resolved means customers who have suffered harm may have to wait longer for redress.

The FLA noted that on the other hand, “rushing to settlement risks consumers receiving an outcome that may not reflect the final position once the ongoing legal challenges have been determined.”

As a result, the FLA said ensuring consumers receive the fairest outcome in as timely a way as possible means that, “in some cases, that may point to early settlement, while in others it may be appropriate to await greater legal certainty”.

The Upper Tribunal will hear the challenge from three captive lenders and a consumer advocacy group between 16 February and 3 March 2027. Until then, under the partial suspension, firms must keep preparing for the scheme and continue progressing complaints as far as possible, but do not need to calculate or pay compensation under the scheme until the legal process concludes.