Financial watchdog battles Barclays’ attempt to quash mis-selling ruling

The financial watchdog at the centre of the finance mis-selling probe has hit back at Barclays’ bid to quash a key ruling at the High Court, claiming it has failed to prove that the dealership in question did not make a profit when it set its own commission rate.

Clydesdale Financial Services trading as Barclays Partner Finance in April initiated judicial review proceedings relating to a case involving a car bought from Arnold Clark that was judged in favour of the customer who claimed to have been unfairly charged for motor finance.

Barclays Partner Finance was ordered to pay the customer the difference between the payments she made at the flat interest rate set by the broker and the payments she would have paid if the agreement had been set up at the lowest, zero discretionary commission paying interest at a rate of 2.68%.

As part of the judicial review process, the court first has to decide whether to grant permission to proceed to a hearing. The Financial Ombudsman Service is defending its original ruling by attempting to block Barclays’ application.

The FOS findings prompted the Financial Conduct Authority (FCA) to launch a wholesale review into whether customers had been unfairly treated when securing loans before 2021 when the FCA banned the practice, believing discretionary commission arrangements had created an incentive for brokers to increase how much people were charged.

In January, FCA said it was giving motor finance firms until September to respond to complaints lodged after mid-November 2023. Since that time, motor finance lenders such as Lloyds Bank and Close Brothers have made significant provision for compensation payouts.

A successful application for a judicial review by Barclays could thereforre significantly impact the FCA’s ongoing investigation.

In a media report, the Daily Telegraph said court documents revealed that the FOS has accused the bank of arguing “academic points”, adding: “The claimant (Barclays) was given full opportunity to provide evidence that the car was not sold by the car dealer for a profit, but did not do so.”

In its original court application filed in early April, Barclays said the court should quash the FOS decision based on the fact that there was a “real divergence” between the agency’s stance on complaints and those of the courts.

Speaking to a Vehicle Remarketing Association event earlier this year, Jonathan Kirk KC of Gough Square Chambers which is engaged in the judicial review by Barclays, said the FCA's approach did not consider the realities of car purchasing.

“The problem with (the FOS ruling) is obvious. The first point is that it didn't take into account the fact that the consumer had received a £1,500 discount on the cost price of the car. So if you look at the overall picture, even with a slightly higher rate, they were doing really well as it was a very good deal.

“The second point is that the dealer simply wouldn't have offered it at that low rate as it wasn't commercial to do so and so the idea that they could have got it just by negotiating is nonsense. And then the third point which is really obvious is that the offer was available nowhere else on the market.”

When contacted for comment, the FOS told AM. "When people take out a car loan, it’s imperative they are treated fairly and the financial implications are totally transparent.

"We have now heard from more than 30,000 people with concerns that they were charged too much for their finance,” it said, adding, "We cannot comment further due to ongoing legal proceedings.”

A Barclays spokesman said: “We do not agree with the FOS’s decision in this case and are therefore challenging it. This challenge relates to a single, specific case and separately we continue to support the FCA’s review into historic motor financing arrangements.”