Barclays challenges motor finance ruling with potential implications to the redress scheme

In a significant move into the relation of mis-sold car finance claims, Barclays bank has launched a legal challenge against the recent ruling related to the motor finance review. This comes as the Financial Conduct Authority (FCA) is preparing to examine the motor finance market over concerns of discretionary commission payments on car finance purchases.

The case has attracted widespread attention, not just because of its potential financial implications, but also for the precedent it sets regarding regulatory oversight and consumer protection in the UK. As of March 2024, over 1 million people have submitted complaints about car finance mis-selling.

The dispute stems from an investigation into Barclays Partner Finance. The FCA identified potential misconduct in the way Barclays handled commission disclosures for customers entering into car finance agreements. The regulator found that Barclays failed to adequately inform customers about commissions paid to brokers, a practice that could have led to inflated costs for consumers.

Barclays has contested the ruling, arguing that its commission practices were lawful and consistent with industry norms at the time. The bank has sought to overturn the decision, taking the case to the courts for review. This legal challenge comes at a critical juncture, as the FCA is preparing a wider redress scheme that could result in Barclays paying out substantial compensation to thousands of motor finance customers.

This comes after the FCA said last month it was extending a pause to the deadline for motor finance companies to respond to complaints and would set out the next steps in its review in May 2025. It also said a redress scheme was "more likely" than when its work began. With an estimated bill that could reach 16 billion pounds, it would make this the costliest consumer banking scandal since payment protection insurance.

Barclays’ challenge to the FCA’s ruling will now proceed through the courts, with a decision expected in the coming months. Regardless of the outcome, this case will likely have lasting effects on the motor finance industry. For financial institutions, the case serves as a reminder of the importance of compliance with regulatory standards and the need to proactively address potential risks. For consumers, it is a powerful reminder of the protections in place to safeguard their interests in financial transactions.

Though commission isn’t always prohibited, some lenders allowed car dealers to adjust the interest rates they offered customers for car finance. The higher the interest rate, the more commission the broker received (known as a discretionary commission arrangement). Discretionary commission arrangements created an incentive for brokers to increase how much people were charged for their car loan.

When customers take out motor finance contracts, it is essential they are given the information they need to determine whether the contract they are entering into works for them and is financially valid. If you have taken out a PCP or HP contract where information has been withheld, or purposefully confused or hidden, you may have been mis-sold and are therefore entitled to make a claim.

At Slater and Gordon, we are car claims experts and are on hand to help with any queries you may have. For more information, contact us at carfinanceclaims@slatergordon.co.uk and our team will do their best to help you. To check if you are eligible, visit here.