Barclays is offering affected drivers an early £829 payout from the motor finance compensation scheme, ahead of the main mass redress payouts expected by end of 2027. Money expert Martin Lewis confirmed that Barclays Partner Finance is the first company to pay out early on car finance mis-selling claims, a move allowed under the Financial Conduct Authority's (FCA) regime.
Background of the compensation scheme
The FCA is overseeing a compensation scheme for drivers who took out motor finance later found to have been mis-sold. Earlier this year, the regulator ruled that approximately 12.1 million finance deals were mis-sold by various lenders between 2007 and 2014.
According to Money Saving Expert, a total of £7.5 billion is set to be paid out across the 12.1 million deals involving Discretionary Commission Arrangements (DCAs), which have since been banned. DCAs allowed car dealers and brokers to increase interest rates on loan deals and pocket the difference, without the borrower being made aware of the inflated rate.
Barclays early settlement details
A legal challenge by three firms has delayed the main scheme's payouts into 2027 while the case is heard. However, Barclays is offering affected customers an early settlement, securing compensation sooner and at the same payout amount the scheme is expected to deliver (£829).
Martin Lewis explained: "So we've just had the news that Barclays Partner finance is to pay out early car finance misselling claims. It's the first one to do it, companies are allowed to do it under the FCA's regime."
He added: "Now this is really interesting, because the main mass redress scheme is on hold until February, when four firms are challenging it in court. And even if that were to go through and challenges fail it would still be the end of 2027 until people get their payouts."
Risks and advice
The only risk is that if the case later increases the payout, those who accepted the Barclays offer will not be eligible, as the payout is 'final', effectively cashing them out of the scheme. But if the scheme falls apart, the payment is secured before that.
Martin Lewis advised: "First of all, you'll get your money now, at the same level as the mass redress scheme. Secondly, it will be simple, it will write to you, you can get the money, but it is a full and final settlement."
He noted that one of the four cases is asking for compensation to be increased, and accepting Barclays' money would mean missing out on any increase. However, he concluded: "But I think for most people who just want the money in their pocket now, if you're offered it, go for it."
