Barclays to settle PPI claims 'no questions asked'

Barclays has said it will repay PPI customers as a 'gesture of goodwill'. Photograph: Bloomberg via Getty Images

Barclays has announced it will compensate all customers who complained they had been mis-sold payment protection insurance (PPI) before 20 April on a "no questions asked" basis.

The payments, which the bank says are intended as a "gesture of goodwill", will comprise all premiums paid plus any added interest. A spokesman refused to say how many customers had complained by that date, but several tens of thousands are believed to be in line for substantial payouts by the end of August: the bank set £1bn aside earlier this year to meet PPI compensation costs.

Customers who complained after this date will have to wait up to 16 weeks before their complaint is resolved, following a temporary extension given to Barclays, Lloyds Banking Group and RBS to deal with a backlog of "stayed" complaints and a high volume of new ones.

PPI is a type of insurance designed to pay out if a policyholder is unable to pay credit card and/or other monthly debt payments because he or she has suffered redundancy or ill heath. However, many of the people sold PPI found they were not eligible to claim, others did not understand that purchase of the policy was voluntary, and some did not even realise they had bought the cover.

Last December the banks regulator, the Financial Services Authority (FSA), issued guidelines defining when a customer should be compensated for being mis-sold such a policy: these included that PPI sellers should talk customers through the key features of a policy rather than assuming they would read relevant documentation, and make it clear the cover was optional.

But the banks claimed it was unfair to apply these rules retrospectively, and most refused to deal with claims of mis-selling until a court case that ended on 20 April ruled the banks must adopt their regulator's guidelines.

In a statement about its decision to compensate existing claimants, Barclays said: "We have said before that when we get things wrong, we apologise and work hard and work fast to put them right as quickly as possible.

"Working in close co-operation with the FSA and the Financial Ombudsman Service, and in recognition of the delay customers have experienced whilst awaiting the outcome of the high court judgment, we can confirm that we are contacting customers whose complaint was put on hold on or before 20 April with an offer to settle their complaint in full as a gesture of goodwill."

The time extension granted by the FSA to the three banks will not affect claims made to other banks, which still have to respond within eight weeks of receiving the complaint.

Customers who believe they may have been mis-sold a PPI policy can complain directly to their bank using the Guardian's template letter.

Andrew Hagger of product comparison website Moneynet.co.uk said: "The decision from Barclays to pay out on all PPI claims submitted before 20 April is a common sense move and hopefully one that other lenders will follow. Not only will the 'no quibble' policy enable compensation to be paid more quickly, it will also slam the door in the face of the growing band of claims management companies looking to make a fast buck at consumers' expense."

Which? chief executive, Peter Vicary-Smith, added: "Banks have a lot to do to rebuild their reputation after more than a decade of mis-selling PPI and then mishandling complaints about it.

"It's fantastic to see Barclays stepping up in this way, acknowledging their mistakes and refunding customers what they are owed, no questions asked. Hopefully this will have a domino effect and other banks will follow suit – the sooner the banking industry can consign the PPI mis-selling scandal to the history books, the better."

Which? advises anyone who thinks they have been mis-sold PPI to complain direct to their bank and avoid costly claims management companies.