The settlement also includes $72.5 million for state civil penalties and nearly $20 million in payments to California and to offset excess emissions, the sources said.
Fiat Chrysler did not admit any wrongdoing.
FCA, in a statement, emphasized the settlements "do not change the Company’s position that it did not engage in any deliberate scheme to install defeat devices to cheat emissions tests. Further, the consent decree and settlement agreements contain no finding or admission with regard to any alleged violations of vehicle emissions rules."
The company already set aside about $800 million for the settlement.
Customers will each receive about $2,800 in compensation from the settlement, FCA said.
“We acknowledge that this has created uncertainty for our customers, and we believe this resolution will maintain their trust in us,” Mark Chernoby, FCA's head of North American safety and regulatory compliance, said in the statement.
“We have implemented rigorous new validation procedures and updated our training programs to ensure continued compliance with the increasingly complex regulatory environment,” he added. “Such measures are consistent with our mission to deliver advanced technologies that deliver value to our customers and that enhance the environmental performance of our products.”
The Justice Department said Fiat Chrysler must work with one or more vendors of aftermarket catalytic converters to improve the efficiency of 200,000 converters that will be sold in the 47 U.S. states that do not already require the use of the California-mandated high-efficiency gasoline vehicle catalysts. That is valued at $50 million to $70 million, officials said.
"Fiat Chrysler broke those laws and this case demonstrates that steep penalties await corporations that engage in such egregious violations," Principal Deputy Associate Attorney General Jesse Panuccio told a news conference.
California joined the litigation by filing suit the night before the settlement was formally announced, Bloomberg reported. State Attorney General Xavier Becerra and the California Air Resources Board announced the state will receive $78.4 million as part of the settlement, Becerra said Thursday in a conference call.
“California’s emission standards exist to protect our residents and the environment from harmful pollution,” Becerra said. “Fiat Chrysler tried to evade these standards by installing software to cheat emissions testing. The company not only violated the law and our trust, but did so at the expense of our environment.”
The Justice Department sued Fiat Chrysler in May 2017, accusing the company of illegally using software that led to excess emissions in 104,000 U.S. diesel vehicles from the 2014-2016 model years.
Fiat Chrysler won approval from U.S. regulators in July 2017 to sell diesel vehicles with updated software. The company has repeatedly said it hoped to use that software to address agencies’ concerns over the 2014-2016 vehicles.
Owners of those vehicles are expected to get up to around $3,000 each for completing the software updates, the sources said.
The Justice Department in 2017 said Fiat Chrysler used auxiliary emissions controls in diesel vehicles that led to "substantially" higher than allowable levels of nitrogen oxide, or NOx pollution, which is linked to smog formation and respiratory problems.
U.S. and California regulators stepped up scrutiny of diesel vehicles after Volkswagen Group admitted in 2015 to illegally installing software in U.S. vehicles for years to evade emissions standards.
VW has agreed to pay more than $25 billion in the United States for claims from owners, environmental regulators, states and dealers. U.S. regulators have also been probing diesel emissions in Daimler AG's U.S. Mercedes Benz vehicles.
Fiat Chrysler sells two U.S. diesel models and plans to add two new Jeep SUV diesel models by 2020.