July sees Barclays judicial review appeal hearing

July 1 marks the start of Barclays latest legal challenge to a Financial Ombudsman Service (FOS) decision made last year, which found a customer was unfairly charged commission on a car loan made by its auto finance subsidiary Clydesdale Financial Services in 2018.

The lender originally sought a judicial review of the ruling at the High Court last October, which dismissed its case in a judgment handed down in December.  Barclays’ appeal against that decision is now being heard at the Court of Appeal, and is expected to take two to three days.

The hearing is being live-streamed from 10.30am on 1 July, via this link.

The case involved Jenna Lewis, a customer who was awarded £1,327 in compensation by the FOS in January 2024. Lewis had purchased a second-hand Audi from the dealership Arnold Clark for £19,133 in November 2018, financing the purchase with a £13,333 loan from Barclays.

FOS found that Lewis had been treated unfairly on the grounds of the undisclosed existence of a discretionary commission arrangement (DCA). Lewis was charged an interest rate of 4.67%, which FOS said was significantly higher than the 2.68% Barclays would have offered directly. Over the five-year term of her loan, this added £1,327 in unnecessary interest costs, which Barclays was later ordered to refund.

The judge at the original judicial review dismissed the challenge on “all the grounds”.  The legal arguments and regulatory requirements under discussion are outlined in this AFC article.

Supreme Court judgment in prospect

The Barclays judicial review comes just weeks before the Supreme Court is expected to hand down its long-awaited decision regarding a much wider series of legal challenges relating to commission disclosure.  These include how and when lenders and intermediaries should disclose the existence of any commission payments in auto finance deals, as well as the principle of fiduciary duty.

The Supreme Court judgment is expected by mid summer, and will inform the Financial Conduct Authority’s (FCA) work on both its own DCA review and, crucially, the design and implementation of any redress scheme for customers in cases where mis-selling is identified.

While almost all commentators agree lenders will be required to pay some form of compensation, it is unlikely to reach the multi-billion pound levels of pay-outs which some analysts have predicted.

 In early June, the FCA made clear that any redress scheme must “ensure the integrity of the motor finance market”, noting that: “If many firms were to go out of business or withdraw from the market, this could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future.”

The regulator will confirm within six weeks of the Supreme Court judgment whether it is going ahead with a redress scheme and publish details of the consultation process along with detailed proposals for how a scheme would work in practice alongside draft rules, including the proposed timings for implementation, which is likely to be in 2026.

“At AFC we have been running workshops in partnership with Shoosmiths to help the industry prepare for any redress scheme, and as soon as practicably possible after the Supreme Court judgment is known we will, with Shoosmiths, host a webinar to help the industry digest the judgment and advise on next step. Look out for a communication from AFC!”