Barclays returns to court appeals financial inspector auto financing ruling
Barclays returned to court this week to try to overturn the landmark Financial Ombudsman ruling on unpublished commission payments in auto financing, a situation that could open to hundreds of millions of pounds for compensation claims.
The appeal came after the bank lost the High Court Challenge in December, when Justice Kerr dismissed his application for judicial review and ruled Barclays on all three of its reasons. At that time, a fee order was issued against the bank.
At the heart of the controversy is a complaint with the Financial Ombudsman Service (FOS) customers who purchased used Audi through Arnold Clark. Clients claim they did not inform them of a loan agreement with Barclays’ subsidiary Clydesdale Financial Services, which included a commission of nearly £1,600 to credit brokers.
FOS maintained the complaint in 2021, noting that the committee did not disclose it clearly and therefore was unfair under consumer credit rules. In response, Barclays sought judicial review, fearing that the ruling could set a precedent for a wide range of claims related to similar financial agreements between 2010 and 2019.
Barclays is now back in court to appeal Judge Kerr’s ruling. The appeal was heard in the Court of Appeal within two days this week, and the judgment is expected to be made later this year.
An analyst at RBC Capital Markets estimates that if the ruling leads to a successful wave of complaints and compensation payments, Barclays could potentially cost £250 million. The case also received close attention from other lenders, many of whom offered similar commission-based financial arrangements.
The ongoing legal legend is connected in parallel with a larger auto financing case that arrived at the Supreme Court in April. That separate case about hidden commissions paid by car dealers and financial companies could have a greater impact on the consumer credit industry in the UK. According to some industry estimates, a ruling that supports consumers could force lenders and car dealers to pay up to £30 billion.
It is expected that potential losses may occur, with several high street banks and auto finance companies already setting aside a large number of financial terms. Some lenders temporarily suspended similar customer complaints, awaiting a Supreme Court ruling, which is expected next month.
The HM Treasury Department tried to intervene in the Supreme Court case earlier this year, but was rejected by the court in February. Government officials raised concerns about the broader implications of the ruling against lenders, who feared that it would understate the financial sector.
For Barclays, the latest legal challenges are part of a growing list of regulatory and reputational pressures. If the appeal is unsuccessful, it could further demonstrate banks (and the broader industry) to the avalanche of consumer complaints and financial liability related to historic auto financing practices.
