Barclays will begin offering payouts to motor finance consumers ahead of the forthcoming legal battle after the City watchdog introduced its “minimum expectations” for lenders wishing to settle early.

The bank said it would make payments using the Financial Conduct Authority’s (FCA) redress scheme methodology and acceptance would be optional. Once a consumer accepts the settlement, they cannot subsequently seek additional compensation.

It comes after the FCA said it would begin to release the names of lenders making payouts before the case heads to 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.

It added lenders would not be able to claim or imply that the regulator vetted or endorsed their specific cash offer and it must be no less than the maximum redress consumers would have received under the original redress.

Under FCA rules, maximum payouts are calculated per agreement 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.

FCA’s £9bn redress faces backlash

The watchdog is set to defend its redress scheme against three challenges from the industry and one from advocacy group Consumer Voice.

The FCA published its finalised proposals at the end of March, where lenders were put on the hook for £9.1bn, lower than previously expected, after the number of qualifying agreements was reduced to 12.1m from 14.2m. But fierce backlash across the aisle led to its suspension in July.

The Supreme Court partially overturned a landmark ruling on car finance deals last year, rejecting claims that hidden commissions were automatically unlawful. It found one customer’s undisclosed commission created an “unfair relationship”, leaving the door open for an industry-wide redress scheme by the FCA. 

Volkswagen Financial Services, which has set aside £725m for expected expenses, is among the challengers to the scheme as well as Mercedes-Benz and Crédit Agricole Auto Finance.

Many of the City’s top banks have criticised the scheme but chose not to challenge it in the courts. Lloyds Banking Group – which has set aside £2bn in payouts – said whilst it was “disappointed” it would not challenge the scheme.

Barclays has set aside a total £430m provision bill 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.”