High street lenders are rapidly increasing compensation reserves ahead of an expected Financial Conduct Authority redress scheme launch later this year, with Barclays becoming the latest bank to significantly boost its payout pot.
The banking giant added £235 million to its motor finance compensation fund, bringing the total to £325 million set aside to address the mis-selling scandal. The move follows Santander’s recent announcement that it increased its own reserves to £461 million to handle claims from affected customers.
The Financial Conduct Authority is currently developing a comprehensive redress scheme targeting “hidden commissions” paid to car dealers and brokers between 2007 and 2021. The regulatory body plans to officially launch the programme later this year, enabling millions of motorists to claim compensation for deals where they were kept uninformed about payments that inflated their monthly interest rates.
Approximately 14 million drivers could qualify for compensation under the forthcoming scheme, with average payouts anticipated to reach £700 per finance agreement. The scale of potential claims has prompted major lenders to substantially increase their financial provisions in recent weeks.
The hidden commission arrangements allowed car dealers and brokers to receive undisclosed payments from lenders, creating a financial incentive to steer customers toward higher-interest finance products. Many motorists remained unaware these commissions were factoring into their monthly repayments throughout the period under examination.
Barclays disclosed the increased compensation provision as part of its annual financial results, which showed pre-tax profit of £9.1 billion for 2025. The figure represents a 13 per cent increase compared to the £8.1 billion generated in 2024.
The bank’s income across all divisions rose during the year, with total group income jumping 9 per cent year-on-year. The corporate banking division saw particularly strong growth of 16 per cent as firms both deposited more cash and increased borrowing, whilst the investment bank’s income surged 11 per cent amid accelerated activity in global financial markets.
Barclays announced plans to distribute more than £15 billion to shareholders between 2026 and 2028 through dividends and share buybacks. The bank also reported achieving cost savings worth £700 million during 2025, bringing the total reductions to £1.7 billion over two years.
The motor finance compensation provisions represent a significant cost for major lenders as they prepare for the FCA’s redress scheme. Industry observers expect additional banks to announce increased reserves in coming weeks as the regulatory programme’s launch approaches.
The FCA has not confirmed a precise timeline for opening the claims process, though motorists affected by hidden commission arrangements between 2007 and 2021 will be able to apply once the scheme becomes operational. The regulator is expected to provide detailed eligibility criteria and application procedures when formally launching the programme later this year.
