Barclays loses judicial review of motor finance case, ombudsman considering next steps

Barclays Bank has lost a judicial review of a decision by the Financial Ombudsman Service relating to the sale of a motor finance agreement involving a discretionary commission arrangement (DCA). The opaque commission model was banned in 2021.

Deputy chief ombudsman James Dipple-Johnstone said the judgment endorsed the approach the ombudsman had taken and brought clarity about the law and regulations for DCAs.

Mr Justice Timothy Kerr said that the customer’s (Ms Lewis) borrowing had been increased as a result of the DCA, which allowed the broker to elevate the interest charged on the loan in return for a higher commission.

“That is so, whether or not, in the self-serving view of the lender and the broker, she is more than compensated for that by other features of the transaction,” Justice Kerr said in his judgment published yesterday.

This is a separate case to the Court of Appeal case brought by Close Brothers and FirstRand Bank, which is being appealed to the UK Supreme Court and will be heard next spring.

Barclays to appeal

“As we have previously stated, 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,” a Barclays spokesperson said on December 17.

Yesterday, Barclays reiterated that its issue was with the ombudsman, not the bank’s former customer. Barclays said in April that it had already paid Ms Lewis the sum awarded by the ombudsman and it would not seek reimbursement if it won the judicial review.

The Financial Conduct Authority (FCA) reminded firms last month that they should consider whether they needed to make financial provisions towards providing redress, following the Court of Appeal decision in October that customers must give informed consent on brokers’ commission.

To date, Barclays has not made any provision. Yesterday, the bank said that Clydesdale Financial Services — the Barclays entity that made the DCA loan — had a low “single digit” share of the motor finance market before it exited all together in 2019.

Analysts estimate the cost of redress for all firms that used DCAs could be between £16 billion and £30 billion.

Backlog of cases

In January, following the publication of two decisions by the ombudsman, including the Barclays case, the FCA announced a review of all DCA motor loans taken out before its 2021 ban of all such sales. Since then, thousands more mis-selling claims have been received by the ombudsman, banks and brokers.

The ombudsman is not bound by the pause on handling complaints that the FCA imposed in January and has since extended until December 4, 2025. “We are now carefully considering the judgment, and what that means for other similar cases that are with our service,” Dipple-Johnstone said yesterday.

The FCA is set to publish a policy statement on extending the complaints handling timeline for non-DCA motor finance agreements on Friday.

Yesterday the regulator welcomed the additional clarity the judicial review judgment had brought on DCAs.

“The judge found that the Financial Ombudsman had interpreted our rules and the Consumer Credit Act 1974 correctly when deciding that the lender and car dealer involved in this case did not meet the relevant standards in place at the time. The Financial Ombudsman was entitled to find that the dealer and the lender did not adequately disclose their commission arrangements to the borrower and that the relationship between the lender and the borrower was unfair in those circumstances,” the FCA said.