Barclays, a prominent high street banking giant, has launched a legal challenge against a ruling by the Financial Ombudsman Service (FOS) regarding a commission payment made for car finance, signalling mounting apprehension among major lenders regarding potential compensation obligations.
The legal dispute revolves around a decision made by the FOS last June, which found Barclays to have unfairly paid commission to a car finance broker in the case of a customer referred to as Miss L. The customer was allegedly unaware of a nearly £1,600 commission included in her loan agreement when purchasing a car in 2018.
Sources within the financial sector disclosed that Barclays has opted to pursue a judicial review in response to what it perceives as several misinterpretations of the law in Miss L’s case. However, the bank maintains that its challenge is specific to this instance and not indicative of broader industry concerns.
Miss L’s case was highlighted by the Financial Conduct Authority (FCA) in January amid a review of historical motor finance commission arrangements and sales across multiple firms. The FCA, although not explicitly naming the firms under scrutiny, engaged EY to conduct a thorough review of these practices.
The FCA’s inquiry has sparked fears among bank investors of potential compensation liabilities akin to those witnessed during the payment protection insurance (PPI) scandal. Lloyds Banking Group, for instance, provisioned £450 million in its annual results to cover possible compensation arising from the FCA’s probe.
While Lloyds Banking Group refrained from commenting on potential legal action, Barclays has taken a proactive stance in challenging the FOS’s decision. The bank emphasizes its commitment to supporting the FCA’s review of historic motor financing arrangements.
A spokesperson for Barclays stated, “We do not agree with the Financial Ombudsman Service’s decision in this case and are therefore challenging it.” The spokesperson reiterated Barclays’ cooperation with the FCA’s broader review while ensuring that the customer affected by the challenge would not incur any financial losses.
Barclays’ legal action underscores the heightened scrutiny faced by banks regarding their past practices, with the outcome potentially shaping the landscape of the car finance industry in the UK.
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Barclays Challenges Financial Ombudsman Service Over Car Finance Commission Claim
