Barclays first big UK lender to pay out on car finance mis-selling

By Amara Osei

Barclays will start paying compensation this month to tens of thousands of customers who claim they were mis-sold car loans, and some who accept could see the money in their accounts before Christmas. The bank is the first big UK lender to break cover and offer payouts while an industry-wide £9.1bn compensation scheme remains frozen by legal challenges.

Barclays Partner Finance, the car finance arm of the banking group, will contact tens of thousands of customers who have already complained over the next couple of weeks, offering what it calls "an early full and final settlement". The bank is using the FCA's own model to calculate the offers.

"Acceptance is optional, and customers will receive clear information on how their offer has been calculated and what accepting it would mean," Barclays said in a statement.

How much is on the table?

The Financial Conduct Authority announced its £9.1bn compensation scheme in March this year. It covers millions of victims of the car finance scandal, in which drivers were overcharged on loans because of commission payments between lenders and car dealers between 2007 and 2024. The FCA had expected to pay out an average of £829 per person this year.

Legal challenges forced the regulator to partly suspend the scheme. A hearing to decide what happens next is due in February next year. Until that dispute concludes, lenders technically don't have to pay anything to people owed money under the scheme.

Why the offers can't be 'lowball'

Under the rules, "early settlement" offers must at least match what customers would receive under the challenged scheme. That design tackles fears banks might try to lowball complainants. The FCA says it supports lenders making settlement offers, "as long as customers are offered no less than they would receive through the scheme".

Barclays Partner Finance has also given an unusual guarantee: it won't claw back money from people who accept now if the final outcome later shows they were entitled to less.

What happens if customers say no?

Anyone receiving an offer has a month to accept or reject it. Accept, and the bank pays the money into a designated account — with the first payments thought to arrive before Christmas, a timing that may sway some decisions. But acceptance closes the door: those who take the deal can't later seek additional compensation, pursue further complaints, or bring legal claims over the commission on that agreement.

Rejecting carries its own risks. If the FCA sees off the legal challenge and its scheme is upheld, payments could begin in 2027. If the judgment is appealed or the scheme is partially or wholly overturned, compensation could slip to 2028 or later. Depending on the outcome, the regulator says those who decline could end up entitled to "more, less, or no compensation".

What's next for the wider scandal?

Barclays has set aside £430m in connection with alleged motor finance mis-selling. It's not clear how many people could be affected in total, or what proportion will receive early settlement offers. The move has already prompted speculation that other companies on the hook for payouts will follow suit.

Under the FCA scheme as it stands, compensation depends on the details of each case. By far the biggest category covers deals that let the dealer or broker hike the customer's interest rate to earn a higher commission.

The February hearing will now determine whether the £9.1bn scheme survives intact — and whether Barclays' early movers got a bargain or left money on the table.