The Financial Conduct Authority (FCA) has confirmed that car finance lenders can settle claims with customers immediately, even as parts of its proposed compensation scheme remain suspended due to legal challenges. FCA chief executive Nikhil Rathi told MPs on July 15 that lenders are free to make settlement offers while the Upper Tribunal considers challenges to the scheme.
Lenders Encouraged to Offer Full Compensation
Speaking to the Treasury Committee, Mr Rathi said the FCA is in discussions with lenders and some claims law firms about allowing consumers to accept compensation based on the terms of the FCA scheme. Motorists who are satisfied with the proposed compensation level could choose to settle their claim in full and receive the money without waiting for the tribunal process to end.
Mr Rathi stated: “We are talking to lenders. We are talking to some claims law firms as well about, where consumers want to move forward with the terms of the scheme and get compensation at the level of the scheme, them being able to do so in full and final settlement.” He added that there are “millions of people in a difficult cost-of-living situation who need this money now.”
Background of the FCA Scheme
The FCA’s proposed scheme is intended to compensate motorists who were treated unfairly when taking out car finance agreements involving certain commission arrangements. However, the scheme is now partially suspended while the Upper Tribunal considers legal challenges brought by several parties, including three of around 111 affected lenders and a separate challenge from Consumer Voice.
Mr Rathi said the regulator remains confident in its plans: “We think the scheme is the quickest, fairest and most efficient way to resolve this issue. We are defending it robustly. We are confident in it.”
Legal Flexibility for Individual Settlements
Although the complaints process has been paused for many cases, lenders are still legally able to agree individual settlements with customers. Mr Rathi explained: “In any dispute situation, the two parties can agree a settlement, irrespective of whether there is a scheme in place, including in a court situation.”
The FCA warned lenders against making offers below the compensation levels proposed under the scheme. Mr Rathi said the regulator would take a “very dim view” of such actions, adding: “It would be very unwise for any lender to offer below the level proposed in the FCA scheme.” The FCA also noted that making reduced offers could breach lenders’ duty to treat customers fairly.
Ongoing Complaints and Future Possibilities
Some complaints are continuing to be processed despite the partial suspension. The FCA said claims involving high-value loans, which account for around 0.5% of affected agreements, can continue because they fall outside the disputed parts of the scheme. Lenders are also expected to begin telling customers when their cases are not eligible for redress.
Mr Rathi said creating a replacement scheme could require another year of consultation and might face further legal challenges, causing additional delays. He stressed that the FCA wants the existing scheme to go ahead and that parts of the process are continuing while the legal case is considered.
