Barclays to offer early payouts over mis-sold car loans, with money possible before Christmas

Barclays is set to start offering compensation to customers who may be owed money over mis-sold car loans in the United Kingdom. It is the first big lender to do so, with offers starting this month, and some of those who accept could see the money reach their accounts before Christmas.

The move comes amid a continuing legal battle over an industry-wide compensation scheme for victims of the UK car finance scandal. Barclays has begun offering payouts to some customers who have complained without waiting for that battle to end.

Under the rules, early settlement offers of this kind must at least match what people would receive under the multibillion-pound scheme that is being challenged, which may help address fears that banks might try to make low offers.

Consumers nevertheless face a difficult decision. Depending on the outcome of the legal battle, those who decline the offer and wait could end up with more money, less money, or nothing at all.

In March this year, the Financial Conduct Authority (FCA) announced a 9.1 billion pound compensation scheme for the millions of victims of the scandal.

Legal challenges forced the regulator to partly suspend the scheme, and a hearing to decide what happens is due to go ahead in February next year.

The FCA had expected to start paying an average of 829 pounds this year to those affected. In the scandal, drivers were overcharged for loans as a result of commission payments between lenders and car dealers between 2007 and 2024.

Millions of people were treated unfairly when they took out motor finance to buy a new or secondhand car, motorbike or van, and ended up paying more than they should have done.

Until the legal challenge is concluded, lenders do not need to pay compensation to people owed money under the scheme. Barclays Partner Finance, part of the banking group, has nevertheless decided to offer payments now to some of those who would be due compensation under the scheme.

That decision has prompted speculation that other companies facing payouts will follow suit.

Over the next couple of weeks, tens of thousands of Barclays customers who have already complained are expected to be contacted directly and offered an early full and final settlement.

Barclays is using the FCA model to calculate the compensation offers. It said acceptance is optional, and customers will receive clear information on how their offer has been calculated and what accepting it would mean.

Customers will have a month to accept or reject the offer, and if they say yes, the bank will pay the money into their designated account. The first payments for those who accept are thought likely to arrive before Christmas, which may feed into some people's decision-making.

Those who accept, however, cannot then later seek additional compensation or pursue further complaints or legal claims relating to the commission on that agreement.

Alternatively, people can reject the offer and wait to see what happens. The FCA said that if it saw off the legal challenge and its scheme was upheld, payments could begin in 2027, but if the judgment was appealed or the scheme was partially or wholly overturned, any compensation owed could be delayed until 2028 or later.