Barclays Allocates £90 Million for Car Finance Redress

Barclays – a well-known multinational bank headquartered in London, has expressed its plan to set aside £90 million as fund allocation for the potential Barclays finance claims, related to the historical Motor Finance Commission practices in which they have been involved.

The company has already disclosed this provision during their company’s 2024 financial results, as it is their response to the ongoing car finance scandal. Allocating provision, assuming the Supreme Court ruling requires lenders to pay compensation, is part of the brand’s strategy to mitigate financial and reputational risks that are commonly associated with past motor finance operations. 

The decision to allocate funds for paying possible refunds and compensations comes alongside the Financial Conduct Authority’s stricter oversight regarding these historical motor finance commission arrangements. Since 2021, FCA has banned discretionary commissions and has been investigating different lenders’ involvement in unfair practices upon offering motor finance agreements. 

Barclays' Exit from the Motor Finance Sector

In the late 2019, Barclays announced its withdrawal from the motor finance sector. However it did not stop complainants from making claims, regarding its past lending practices, which is said to have caused mis-selling to become prevalent amongst consumers. Once these massive claims have been decided upon and are ruled to favour consumers, Barclays and other financial institutions would be required to pay off refunds and compensations or offer adjustments to current agreements. 

However, the allocated £90 million may not even be enough to pay off Barclay’s commission arrangements and unfair practices. 

Assessing the Potential Financial Impact

There are several factors in play, which could affect the financial impact of these claims to lenders and dealers. It includes finding legal basis for the consumer’s redress, the timeline for implementation, and the validity of the complaint. The volume of claims that consumers submitted will also be affected. 

Meanwhile, Barclays has already mentioned the uncertainty of these estimated numbers. In addition, the Bank mentioned that the provision can and will be adjusted depending on the availability of information and the FCA's progress on the claim reviews. 

FCA Investigation and Future Steps

By May 2025, the FCA will conclude the review of these motor finance commission arrangements, and key findings will be addressed as well. Once a redress scheme has been mentioned and required, then it will be the framework for handling consumer complaints and used in compensating affected customers. 

In clarification, as per FCA regulations, there isn’t a need for Barclays to respond immediately, and will be given until December 4, 2025. This goes for all finance lenders and dealers who are involved in mis-selling issues. The delay time allows the regulatory body to ensure that customers and financial institutions alike operate in a clear and structured resolution process. 

Comparisons with Other Banks

Barclays is not the only financial institution that has been preparing for potential payouts related to motor finance commission claims. Other major lenders, such as Santander, have already shelled out £295 million reserved for addressing this car finance scandal. But the final decision on how much financial exposure there is for each lender varies on the FCA findings and the number of claims submitted by consumers.

Considering the number of lenders already expressing their willingness to ensure compensation to the affected consumers, there’s no denying that things are still fluid at the moment.  Barclays and other banks have been closely monitoring this to be able to provide a proactive response that would ease things out, considering the amount that would need to be paid for compensation and refund. Depending on the regulatory and legal outcomes, Barclays may need to increase its provision if the cost of compensation exceeds current estimates.

Conclusion

Like other huge lenders, Barclays is preparing for the potential payouts from what resulted as a mis-selling practice they have made in the past. And now the bank is maintaining a cautious stance regarding the financial impact. For Barclays car finance claims, a resolution is to be awaited until December 2025. Also, the FCA’s review will be instrumental in determining the level of redress required, and the bank’s provision may evolve as new developments arise.