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Volkswagen has agreed to pay $14.7bn to settle claims generated by its emissions rigging scandal and to buy back cars from consumers at pre-scandal prices, the Department of Justice announced on Tuesday.

Volkswagen’s wrongdoing constituted “the most flagrant violations of our consumer and environmental laws in our country’s history”, deputy US attorney general Sally Yates said announcing the agreement. “We cannot undo the damage that’s been done to our air quality, but we can offset that damage.”

One piece of the settlement, an estimated $10bn due to consumers, was reported last week and would come to an average payout of about $21,000 per vehicle owner for the 500,000 Americans affected.

The rest of the $14.7bn includes a $2.7bn settlement paid to the Environmental Protection Agency (EPA) and $2bn in investment to support zero-emission vehicles. The Federal Trade Commission (FTC) also formally banned the software used to beat the emissions tests.

The fines are not the end of VW’s woes. A Department of Justice criminal investigation is ongoing, as is the inquiry of the German government. If settlements with General Motors and Toyota are anything to go on, the cost of the criminal case to VW could exceed another $1bn, said Carl Tobias, Williams chair in law at the University of Richmond.

“What’s critical is this is an historic settlement certainly in terms of amount but also in terms of what it covers or tries to cover,” said Tobias. “This is a real step forward: people who own the vehicles seem to be getting a pretty good deal especially with the buybacks and the compensation on top of that.”

“This is the largest monetary mitigation obligation in the history of the Clean Air Act,” said Yates. “The settlements do not address any potential criminal liability, although I can assure you that our criminal investigation is active and ongoing.”

“Volkswagen has to swallow a $15bn pill, but it needs to take this medicine in order to move on,” said Jessica Caldwell, director of industry analysis for auto pricing firm Edmunds. “This massive financial hit won’t magically make VW’s troubles disappear overnight, and it still has a long road ahead to repair its reputation among car shoppers. The company got a head start earlier this month by announcing a long-term commitment to electrification, but it will be a long time before shoppers will trust VW as an environmentally friendly brand.”

Yates said the settlement was fitting given the damage wrought by the alleged cheating. “We cannot undo the damage it ha€™s done to our air quality,” she said. “We can’t suck the NOx out of the air.”

Avoidance tactics damage not just VW, but German economy

The settlements will be meted out among the various plaintiffs, among them the state of New York, which partially outlined its own use of the awarded funds: $115m for environmental projects to improve New York’s air quality, and $30m to the state’s general fund. “Make no mistake: we will continue to investigate and pursue Volkswagen for its violation of our environmental laws, and we will seek the imposition of additional penalties in amounts sufficient to ensure that Volkswagen and any other car manufacturer complies with the standards required of them,” said New York attorney general Eric Schneiderman.

The affected cars are the 2009 through 2015 Volkswagen TDI diesel models of Jettas, Passats, Golfs and Beetles as well as the TDI Audi A3.

“I want this agreement to remind every American that the EPA is on the job and we have your back when companies break rules designed to protect your health and when cheaters stack the deck against businesses that follow the law,” said EPA administrator Gina McCarthy.