Motor finance redress: FCA encourages lenders to make early settlement offers

Earlier this year, the FCA partially suspended its motor finance redress scheme and issued guidance to firms pending the outcome of legal challenges to the scheme (for a summary of the scope of the scheme and the background leading up to it, see our article here). The judicial review proceedings are due to be heard by the Upper Tribunal in February 2027, with judgment to follow in the months afterwards (subject to any appeal). The FCA has made it clear that the legal challenge could culminate in a number of outcomes including quashing the scheme in full or part.

The FCA has now announced the results of a consumer survey [1] which suggests:

• 89% of car finance customers who have complained or are considering doing so now want the choice of an offer rather than waiting for the legal challenges.
• 86% would be comfortable making the decision.
• 61% said they'd accept an offer in line with the scheme.

The FCA has released the survey results with new guidance prescribing how settlement offers can be made. The survey and guidance were released alongside an announcement by Barclays Partner Finance that it intends to make some early settlement offers. The announcement makes it clear that, whilst the lender will not ask a consumer to repay any settlement if the final outcome would otherwise entitle them to less (or no offer), it also makes clear what the consumer is potentially giving up if they decide to accept the offer in that, depending on the outcome of the legal challenge, the consumer could be entitled to a larger offer.

The FCA plans to keep its website updated with a list of lenders that have announced an intention to offer compensation. It has also published a factsheet which lenders will be required to share with consumers when offering compensation.

What happens to the complaint if a settlement offer is accepted?

The FCA has made it clear that it would expect the complaint to be treated as withdrawn provided: (i) appropriate information has been provided to a consumer in relation to the offer (see further below); (ii) the offer is no less than the maximum available under the scheme (using the scheme methodology subject to relevant adjustments and caps); and (iii) the consumer has voluntarily entered into a settlement agreement. 

What are the FCA's minimum expectations for settlement offers?

The guidance sets out a number of minimum requirements which include:

• Provide brief context to the offer by reference to the partial suspension of the scheme and legal challenge.
• Explain that the amount of the offer is at least equal to the maximum redress that would be available under the scheme.
• Explain the options available: that the consumer can choose whether to accept the offer now or wait for the outcome of the legal challenge. The offer should explain that the legal challenge could result in changes to the redress scheme, which could result in more or less redress due but neither the lender nor the consumer would be able to claim the difference. 
• Explain that if the consumer decides to wait for the outcome of the legal challenge, neither the offer nor the underlying complaint can be referred to the Financial Ombudsman Service at this stage.
• Explain that if the consumer decides to accept the offer, what "full and final settlement" means in practice, including that the consumer gives up any entitlement to redress under the current scheme and their existing complaint will be treated as withdrawn (or in the case of a mixed complaint, the scheme element of the mixed complaint is withdrawn).
• Explain that for mixed complaints, the offer does not aim to resolve the non-scheme element or any aspect of the complaint not covered by the scheme (such as GAP insurance or affordability), which have either been responded to separately or will be within 1 month from acceptance of the offer.
• Allow at least 1 month to respond to the offer.
• Outline: (i) the type of relevant arrangement identified and investigated; (ii) the basis of liability; (iii) the amount of redress offered; and (iv) how it has been calculated (including any set-off, caps, compensatory interest and/or income tax deduction).
• Demonstrate clearly how the lender has ensured that the offer is no less than the maximum redress that would be available under CONRED 5/6.4 (including Annex 2 which outlines the requirements for a provisional redress decision).
• Make it clear that acceptance is optional. Encourage consumers to consider the offer in light of their circumstances and seek advice, where appropriate.
• Signpost the FCA's frequently asked questions.

For further detail on the requirements for these early settlement offers, see the FCA's guidance.

What should lenders avoid in settlement offers?

The guidance makes it clear that lenders should avoid any suggestion that the specific offer or its individual terms have been reviewed or approved by the FCA.

For queries or advice in connection with this guidance, please contact Sonya Zywko.

[1] An online survey of 1,000 motor finance customers was conducted by Kantar between 25 and 28 June 2026. The results cited by the FCA are based on a subset of 590 respondents who said they had made or were considering making a motor finance complaint.