Motor finance scheme: settlement offers

Following a legal challenge[2], elements of our motor finance redress scheme have been partially suspended[3]. Some firms may choose to make voluntary settlement offers to consumers during this period.

Here we set out our minimum expectations for communications accompanying such offers that are determined in line with the scheme.

These expectations are intended to help your firm ensure that consumers are provided with clear, fair and not misleading information when deciding whether to accept an offer, and to promote a consistent approach across firms.

Where a consumer voluntarily enters into a settlement agreement after being provided with appropriate information, we would expect that the complaint relating to that agreement would ordinarily be treated as withdrawn. This is on the basis that the lender can demonstrate that the offer reflects no less than the maximum redress that would be available under the scheme (ie the amount calculated for the individual consumer under the scheme methodology, including relevant adjustments and caps). 

Minimum expectations for settlement offer letters

Offer letters should not suggest or imply that we have approved the specific offer made to the consumer. It should make clear that we have not reviewed the terms of any individual settlement offer. Consumers should consider the offer in light of their own circumstances and seek advice where appropriate.

You should give consumers at least 1 month to respond to the offer.

The offer should also contain:  

• A brief context to the offer, including our scheme coming into force, and its subsequent partial suspension following legal challenge.
• An explanation that the amount of the offer is at least equal to the maximum redress that would be available under the scheme.
• Signposting to our frequently asked questions (PDF)[4].
• An explanation that the consumer can accept the offer now or wait for the outcome of the legal challenge. And that the legal challenge may result in an amended redress scheme, or no mandatory redress scheme, which may both result in more or less redress due – but neither the lender nor the consumer would be able to claim the difference.
• An explanation that if the consumer does not wish to accept the offer, the consumer can wait for the outcome of the legal challenge but cannot, at this stage, refer the offer or the underlying complaint to the Financial Ombudsman Service.
• An explanation of what accepting a ‘full and final settlement’ means in practice, including that:
  • The offer settles all matters that would otherwise fall within the scope of the current scheme, meaning the consumer gives up any entitlement to compensation under the current scheme.
  • Their existing complaint will ordinarily be treated as withdrawn (or in the case of a mixed complaint, that the scheme element of a mixed complaint is treated as withdrawn).
• For mixed complaints, an explanation that:  
  • There are 2 elements to the complaint – a scheme element and a non-scheme element – and that this offer is only aiming to resolve the scheme element.  
  • Any related complaint points not covered within the scheme (such as GAP insurance or affordability) have been responded to separately, or will be responded to within 1 month from the acceptance of the offer.
• Further information signposting and encouragement to seek clarification or advice if the consumer does not understand the offer or its consequences.

Setting out the remedy and amount of redress due

Our minimum expectations for the letter appendix:

• The type of relevant arrangement(s) identified and investigated.
• The basis of liability found.
• The amount of redress payable and how it has been calculated, including any set-off and/or caps applied where relevant, compensatory interest and income tax deduction.
• A clear demonstration of how you ensured that the amount of the offer is no less than the maximum redress that would be available under CONRED 5/6.4.

For further information on what to include, you can refer to CONRED 5/6 Annex 2, which sets out the requirements for a provisional redress decision, including those sent for an early settlement offer. While this Annex is currently suspended, it can provide some guidance on what to include.