Drivers mis-sold car loans may get payouts while regulator scheme is challenged

Drivers who have been mis-sold a car loan may be offered payouts while the watchdog’s industry-wide compensation scheme faces delays, as Barclays confirmed it would start making early settlement offers.

The Financial Conduct Authority (FCA) said this could mean some people get money sooner.

Parts of its redress scheme are suspended as it faces legal challenges in court, with the case due to go ahead in February and a judgment and any payments expected months after that.

It means that, until the court case concludes, lenders are not expected to pay compensation to people owed money under the scheme.

But the regulator said it would welcome firms offering payments to consumers owed compensation on some car finance agreements during this period.

The offer would have to match or be more than the amount people would receive under the FCA scheme.

Barclays confirmed it was offering payments to some customers who have previously complained about the commission on their motor finance agreement.

Consumers would have a month to accept or reject the offer.

The lender, which exited the motor finance market several years ago, previously set aside around £325 million to cover the potential costs related to historical mis-selling.

Lloyds Banking Group, which continues to operate in the market through the Black Horse brand, set aside £1.95 billion but has not yet begun offering payments.

A Barclays Partner Finance spokesperson said: “We recognise that some customers have already faced a considerable wait for an outcome on their motor finance complaints.

“By making these early settlement offers, we are giving some customers the option of receiving redress sooner, rather than waiting for the legal challenges and any subsequent FCA action to conclude.”

Stephen Braviner Roman, the FCA’s general counsel, said it was clear that people “want the choice” to get money sooner.

“Anyone who wants to wait can, and there’s no obligation to agree to the offer,” he said.

“We’ll closely monitor firms making offers and expect them to be clear what accepting an offer means.”

A spokesperson for the Financing and Leasing Association (FLA) cautioned that settlement offers do not necessarily “remove the dilemma facing lenders”.

“On the one hand, delaying payments until the legal issues are resolved means customers who have suffered harm may have to wait longer for redress,” they said.

“On the other hand, rushing to settlement risks consumers receiving an outcome that may not reflect the final position once the ongoing legal challenges have been determined.”

The FLA said it “wants to see consumers receive the fairest outcome in as timely a way as possible”.