Barclays loses bid to overturn Ombudsman ruling on car commission agreements
- Barclays’ spokesman said it will seek to appeal the High Court’s decision
- Since January, the FCA has been investigating the historical sales of car financing
Barclays has failed to overturn a major court ruling on commission payments on car finance deals.
The banking giant launched a judicial investigation in April following a decision by the Financial Ombudsman Service regarding the commission Barclays paid to a car finance broker on a deal struck in 2018.
In June 2023, the FOS said Barclays Partner Finance acted unfairly when it failed to inform a customer that a car loan agreement included a commission of almost £1,600.
Barclays appealed the verdict, saying it had paid damages to the customer and complied with all legal and regulatory obligations.
The High Court has now rejected all three of Barclays’ appeals, but a spokesperson for the bank said it will appeal.
‘This challenge related to one specific case where we disagreed with the Financial Ombudsman Service’s decision. “We are disappointed with the court’s decision and will appeal,” they said.
Undesirable outcome: Barclays has failed to overturn a major court ruling on commission payments on car finance deals
The case was heard just weeks before a landmark judgment in late October that sent shockwaves through the auto finance industry.
Court of Appeal judges ruled that it was unlawful for lenders to pay a commission to car sellers on finance deals without the car buyer’s ‘fully informed consent’.
After the verdict, auto finance providers became deeply concerned that they could be forced to pay significant compensation to drivers.
Credit rating agency Moody’s believes the sector could pay up to £30 billion, but a senior lawyer at the Financial Conduct Authority recently suggested this figure could eclipse the £50 billion PPI scandal.
Last week, the Supreme Court provided a major lifeline when it granted two major auto loan providers, Close Brothers and MotoNovo owner FirstRand, permission to appeal the October decision.
Close Brothers suspended making new car finance deals for around four weeks after the Court of Appeal ruling, before restarting on November 21.
The London-based company has also suspended dividends and agreed to sell its asset management division to Oaktree to strengthen its capital position pending any compensation payments.
Meanwhile, Lloyds Banking Group and Santander UK have set aside £450 million and £295 million respectively to cover the potential costs of any payouts.
Since January, the FCA has been investigating the historic sale of discretionary commission schemes (DCAs), which allowed dealers and brokers to choose the interest rate on a car buyer’s finance deal.
This incentivized brokers to charge consumers higher rates regardless of additional factors such as the value of the loan, the length of the agreement or a customer’s credit score.
The FCA was used in around three-quarters of all car finance deals between 2007 and 2020 and banned DCAs at the start of this year.
Barclays shares were down 1.7 percent at 265.8p by mid-Tuesday afternoon, but are nevertheless up around 82 percent over the past year.
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