Barclays loses challenge in motor finance commission case

Barclays faced a significant setback on Tuesday after its challenge to overturn a ruling on motor finance commission practices was dismissed by the High Court. The decision is poised to have far-reaching implications for the financial sector, as the Financial Conduct Authority (FCA) considers a multibillion-pound consumer redress scheme.

The case centred on a decision by the Financial Ombudsman Service, which found that a customer had been unfairly charged a commission of over £1,300 on a car loan facilitated by Barclays Partner Finance in 2018. The ruling highlighted the lack of informed consent from customers, a practice deemed unlawful by the Court of Appeal in an earlier landmark judgment.

“This challenge related to a single, specific case on which we disagreed with the Financial Ombudsman Service’s decision,” a Barclays spokesperson stated. “We are disappointed in the court’s ruling and will be appealing.”

The ruling has sent ripples through the motor finance industry, with Barclays’ shares trading 2.25% lower by mid-morning. The legal battle has broader implications, as highlighted by both Barclays’ and the FCA’s acknowledgment during an October hearing.

The FCA is currently evaluating a redress scheme that could address widespread grievances among consumers who were unknowingly subjected to commission payments. The Court of Appeal’s earlier ruling on related cases involving Close Brothers and FirstRand has intensified scrutiny on the sector, pressuring lenders to reassess their practices.

Barclays’ ongoing appeal will unfold against the backdrop of a pending Supreme Court case. The UK’s highest court last week granted permission to review the earlier Court of Appeal ruling, offering a glimmer of hope to lenders like Barclays. The hearing is set for January 2025 and will likely play a critical role in shaping the future of motor finance regulations.

The financial fallout from these rulings is already evident. Major lenders, including Lloyds Banking Group and Santander’s UK arm, have collectively set aside hundreds of millions of pounds to cover potential liabilities. Lloyds has earmarked £450 million, while Santander has provisioned £295 million, underscoring the magnitude of potential redress.

Responding to the High Court’s judgment in the Judicial Review of the Financial Ombudsman Service’s decision in a motor finance case, Stephen Haddrill, Director General of the Finance & Leasing Association said: “

“We note the High Court’s decision, which relates to a single case and which Barclays is planning to appeal. With the Supreme Court due to discuss similar issues in spring 2025, we look forward to that process.”

Wayne Gibbard, Shoosmiths Partner and Co-Head of Financial Services, commented: “The decision handed down today is a further challenge to the sector, which remains under significant pressure.

“The decision will be seen as disappointing to many, but it does not change the current issues which the sector is facing. It does however underline one of the main issues with the current regulatory framework and the decision making powers afforded to FOS. It is this regulatory complexity and uncertainty, which was referred to in the Chancellor’s Mansion House speech and I would hope that if nothing else, this advances change to provide certainty to lenders and everyone in the future. Outside of this we will await the Supreme Court’s decision next year and the FCA’s output from their ongoing review”.

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