Barclays is set to begin issuing payouts to motor finance customers ahead of an upcoming legal battle, following the City watchdog's introduction of "minimum expectations" for lenders seeking to settle early.
The bank confirmed it would make payments in line with the Financial Conduct Authority's (FCA) redress scheme methodology, with acceptance remaining entirely voluntary. Once a customer agrees to a settlement, they will be unable to pursue any further compensation.
FCA's early settlement framework
The move follows the FCA's announcement that it would start publishing the names of lenders making payouts before the case reaches the Upper Tribunal in February 2027.
"The regulator supports lenders making settlement offers, as long as customers are offered no less than they would receive through the scheme," the FCA said.
The watchdog also warned that lenders would be prohibited from claiming or implying that the regulator had vetted or endorsed their specific cash offer, and that any settlement must be no lower than the maximum redress consumers would have received under the original scheme.
Payout calculations and industry reaction
Under FCA rules, maximum payouts are calculated on a per-agreement basis and capped at either a full commission refund or the total financing charges paid, plus statutory interest.
"Lenders have been considering making early settlement offers but have been reluctant to move ahead without a clear signal from the regulator. With that reassurance now in place, we could see a number of lenders break cover and begin offering compensation ahead of the wider scheme," Harry Charalambous, principal at consultancy Broadstone, said.
Legal challenges and the £9.1bn scheme
The regulator is preparing to defend its compensation programme against three legal challenges from the motor finance industry and one from advocacy group Consumer Voice.
The FCA published its finalised proposals at the end of March, setting lenders' liability at £9.1bn – lower than initially anticipated – after the number of eligible agreements was cut to 12.1m from 14.2m. However, widespread opposition from all sides led to its suspension in July.
The Supreme Court partially overturned a landmark ruling on car finance arrangements last year, rejecting claims that undisclosed commissions were automatically unlawful. It determined one customer's hidden commission created an "unfair relationship", paving the way for an industry-wide compensation scheme overseen by the FCA.
Volkswagen Financial Services, which has earmarked £725m for anticipated costs, is amongst those contesting the scheme, alongside Mercedes-Benz and Crédit Agricole Auto Finance.
Numerous leading City banks have voiced concerns about the programme but opted against mounting legal challenges. Lloyds Banking Group – which has allocated £2bn for settlements – stated that while it was "disappointed", it would not contest the scheme.
Barclays' commitment and next steps
Barclays has put aside a total of £430m for compensation through its Barclays Partner Finance arm.
A Barclays Partner Finance spokesperson said: "We recognise that some customers have already faced a considerable wait for an outcome on their motor finance complaints.
"By making these early settlement offers, we are giving some customers the option of receiving redress sooner, rather than waiting for the legal challenges and any subsequent FCA action to conclude."
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."
