Barclays loses bid to overturn Ombudsman ruling on car commission deals

Barclays has failed to overturn a major court ruling on the payment of commissions on car finance deals.

The banking giant launched a judicial review in April of a decision by the Financial Ombudsman over the commission Barclays paid to a vehicle finance broker in a deal struck in 2018.

In June 2023, the FOS stated that Barclays Partner Finance acted unfairly by failing to inform a customer that a car loan deal included a fee of almost £1,600.

Barclays appealed the verdict, saying it had paid compensation to the client and fulfilled all legal and regulatory obligations.

The High Court has now dismissed all three grounds of appeal brought by Barclays, but a spokesman for the bank said it would seek to appeal.

‘This challenge concerned a single, specific case where we disagreed with the decision of the Financial Ombudsman Service. “We are disappointed with the court’s ruling and will appeal,” they said.

The case was heard just weeks before a landmark ruling in late October that shocked the auto finance industry.

Court of Appeal judges decided it was unlawful for lenders to pay commission to vehicle sellers on finance deals without the “fully informed consent” of the car buyer.

Following the ruling, car finance lenders became seriously concerned about the possibility of being forced to pay considerable compensation to drivers.

Ratings agency Moody’s believes the sector could pay up to £30bn, but a senior lawyer at the Financial Conduct Authority recently suggested the figure could dwarf the £50bn 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 around four weeks following the Court of Appeal ruling before starting again on 21 November.

The London-based company 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 £450m and £295m respectively to cover the potential cost of any payout.

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

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

After being used in around three-quarters of all car finance deals between 2007 and 2020, the FCA banned DCAs earlier this year.

barclays stock They were down 1.7 per cent at 265.8p in mid-afternoon on Tuesday, but are nonetheless up around 82 per cent over the past year.