Barclays fails in legal bid to overturn FOS decision on unfair car finance commissions

Barclays has suffered a legal defeat against the Financial Ombudsman Service (FOS) over a ruling that it unfairly paid commission to a car finance broker, marking the latest chapter in the ongoing motor finance scandal.

Earlier this year, the FOS ruled that Barclays Bank had unjustly paid commission to a credit broker concerning a customer's car loan (Ms Lewis), as reported by City AM.

The dispute originated when Ms Lewis lodged a complaint with the FOS in December 2021 about her treatment in November 2018 when she purchased a second-hand Audi from Arnold Clark. She was not informed that a loan agreement she took out also included a commission payment of nearly £1,600, a complaint upheld by the FOS.

It emerged in April that Clydesdale (trading as Barclays Partner Finance) initiated a judicial review against this decision. Although the case pertains to one individual, the ruling could potentially trigger a wave of compensation repayments for the bank.

RBC analysts forecasted that Barclays, which offered motor lending between 2010 and 2019, could face up to £250m in compensation payments. The case was presented before Mr Justice Kerr in October, who scrutinised the regulatory context of the motor commission.

However, on Tuesday, the High Court dismissed the appeal in a written judgment.

This differs from the landmark ruling in the Court of Appeal in October, which stated that a broker could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent to the payment. Close Brothers’ application to appeal that ruling to the Supreme Court was granted last week.