Barclays has suffered a major blow after losing its court challenge against a Financial Ombudsman Service (FOS) ruling, a decision that could open the floodgates to billions of pounds in compensation claims for mis-sold car finance agreements.
Mis-Sold Car Loan
The case involved Jenna Lewis, a customer who was awarded £1,327 in compensation by the FOS in January 2024. Lewis had purchased a second-hand Audi from the dealership Arnold Clark for £19,133 in November 2018, financing the purchase with a £13,333 loan from Barclays.
Unbeknown to Lewis, the dealership had unfairly increased the interest rate on her loan to secure a higher commission from Barclays. She was charged an interest rate of 4.67%, significantly higher than the 2.68% Barclays would have offered directly. Over the five-year term of her loan, this added £1,327 in unnecessary interest costs, which Barclays was later ordered to refund.
This practice, known as discretionary commission, was common in car finance agreements before being banned by the Financial Conduct Authority (FCA) in 2020.
Barclays’ Failed Appeal
Barclays pursued a judicial review in the High Court, arguing that the FOS had misinterpreted the law. However, Mr Justice Kerr dismissed the bank’s challenge on all grounds. Barclays has since confirmed it will appeal the decision, but the implications of this ruling are significant.
The judgment caused Barclays’ shares to fall by 1.3%, with other banks implicated in the scandal, including Lloyds and Close Brothers, also seeing share price drops.
A Barclays spokesperson said:
“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.”
Wider Implications on Mis-Sold Car Finance
The case has drawn attention to the widespread issue of mis-sold car finance. Between 2007 and 2020, approximately 14.6 million car loans were arranged under discretionary commission models, generating £8.1 billion in commission for banks and dealerships.
The FCA investigation into car finance mis-selling is now focusing on whether customers were adequately informed about these commission arrangements and their impact on repayments. It is expected to outline its findings and next steps in May 2024.
Banks including Barclays, Lloyds, and Close Brothers face potential liabilities for failing to disclose such practices. Compensation costs could reach as much as £6 billion, according to RBC Capital Markets.
Court of Appeal Ruling Adds Pressure
In a separate October 2024 ruling, the Court of Appeal determined that any undisclosed commission paid to car dealers, not just those under discretionary commission models, could be considered unfair to consumers. If upheld by the Supreme Court, this ruling would significantly expand the scope of mis-selling claims and increase financial exposure for the affected banks and dealerships.
The Supreme Court is set to hear an appeal by MotoNovo and Close Brothers in 2025.
Mis-sold Car Loans – Make That Claim
If you believe you were affected by similar practices, you may be entitled to compensation. Hutcheon Law is a leading authority on mis-sold car finance agreements. We provide a comprehensive guide on how to claim for mis-sold car finance and ensure consumers understand their rights.
For more information, visit:
•Hutcheon Law – Mis-Sold Car Finance Overview
•FCA Investigation into Car Finance Mis-Selling
This landmark ruling is a reminder of the need for transparency in consumer credit agreements. If you suspect you were affected, don’t delay—ensure your rights are protected.
https://www.hutcheonlaw.co.uk/mis-sold-car-finance
