Barclays is back in court this week seeking to overturn a landmark Financial Ombudsman ruling concerning undisclosed commission payments in motor finance—a case that could open the floodgates to hundreds of millions of pounds in compensation claims.
The appeal comes after the bank lost a High Court challenge in December, when Mr Justice Kerr dismissed its application for judicial review and ruled against Barclays on all three grounds of its case. A costs order was also made against the bank at the time.
At the heart of the dispute is a complaint made to the Financial Ombudsman Service (FOS) by a customer who purchased a second-hand Audi through Arnold Clark. The customer claimed they were not informed that their loan agreement with Clydesdale Financial Services, a subsidiary of Barclays, included a commission payment of nearly £1,600 to a credit broker.
The FOS upheld the complaint in 2021, stating that the commission was not clearly disclosed and therefore unfair under consumer credit rules. In response, Barclays sought a judicial review, fearing the ruling could set a precedent for widespread claims related to similar finance agreements made between 2010 and 2019.
Barclays has now returned to court, appealing Mr Justice Kerr’s decision. The appeal is being heard at the Court of Appeal over two days this week, with a judgment expected later in the year.
An analyst from RBC Capital Markets has estimated that the potential cost to Barclays could reach up to £250 million if the ruling leads to a wave of successful complaints and compensation payouts. The case is also being closely watched by other lenders, many of whom have offered similar commission-based finance arrangements.
The ongoing legal saga runs in parallel with an even bigger motor finance case that reached the Supreme Court in April. That separate case, concerning hidden commissions paid by car dealers and finance companies, could have even wider ramifications for the UK’s consumer credit industry. A ruling in favour of consumers could force lenders and motor dealers to pay out as much as £30 billion in compensation, according to some industry estimates.
In anticipation of potential losses, several high street banks and car finance companies have begun setting aside large financial provisions. Some lenders have temporarily suspended handling similar customer complaints pending the Supreme Court’s decision, which is expected next month.
Adding to the controversy, HM Treasury attempted to intervene in the Supreme Court case earlier this year but was rebuffed by the court in February. Government officials had raised concerns about the broader implications of a ruling against lenders, fearing it could destabilise the financial sector.
For Barclays, the latest legal challenge is part of a growing list of regulatory and reputational pressures. If the appeal is unsuccessful, it may further expose the bank—and the wider industry—to an avalanche of consumer complaints and financial liabilities tied to historic motor finance practices.
