Barclays loses try to overturn Ombudsman’s ruling on automotive fee offers

Barclays has failed to overturn a major court ruling concerning commission payments on motor finance deals.

The banking giant launched a judicial review in April over a decision by the Financial Ombudsman Service regarding the commission Barclays made to a vehicle finance broker on a deal arranged in 2018.

In June 2023, the FOS declared that Barclays Partner Finance acted unfairly when it failed to inform a customer that a car loan agreement included a commission fee of nearly £1,600.

Barclays appealed the verdict, saying it had paid the customer compensation and obeyed all legal and regulatory obligations.

The High Court has now dismissed all three grounds of appeal brought by Barclays, but a bank spokesperson said it will look to appeal.

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

Undesired outcome: Barclays has failed to overturn a major court ruling concerning commission payments on motor finance deals

The case was heard just weeks before a landmark judgement in late October that sent shockwaves through the motor finance industry.

Court of Appeal judges decided that it was unlawful for lenders to pay a commission to vehicle sellers on finance agreements without the ‘fully informed consent’ of the car buyer.

Following the verdict, motor finance lenders became seriously concerned that they could be forced to pay considerable compensation to drivers.

Ratings agency Moody’s believes the sector could pay up to £30billion, but a senior lawyer at the Financial Conduct Authority recently suggested the figure could dwarf the £50billion PPI scandal.

Last week, the Supreme Court provided a major lifeline when it granted two major car loan providers, Close Brothers and MotoNovo owner FirstRand, permission to appeal against the October decision.

Close Brothers suspended underwriting new vehicle finance deals for about four weeks following the Court of Appeal’s ruling before starting again on 21 November.

The London-based company has also suspended dividends and agreed to sell its wealth management division to Oaktree to bolster its capital position in anticipation of any compensation payments.

Meanwhile, Lloyds Banking Group and Santander UK have set aside £450million and £295million, respectively, to cover the potential cost of any payouts.

Since January, the FCA has been investigating the historical sale of discretionary commission arrangements (DCAs), which enabled dealerships and brokers to choose the interest rate on a car buyer’s finance agreement.

This incentivised brokers to charge consumers higher rates regardless of additional factors, such as the loan’s value, length of agreement, or a customer’s credit score.

Having been used in around three-quarters of all car financing deals between 2007 and 2020, the FCA banned DCAs at the start of this year.

Barclays shares were 1.7 per cent down at 265.8p on mid-Tuesday afternoon, but have nonetheless climbed by around 82 per cent over the past year.