Barclays abandons auto finance commission appeal

Barclays has withdrawn its appeal against a Financial Ombudsman Service (FOS) decision relating to motor finance commission payments just days before the case was due to be heard at the Court of Appeal, with the lender stating it will now await the Financial Conduct Authority (FCA) decision on an industry-wide redress scheme, due next month.

The appeal was scheduled for September 16-18, but has been marked by the Court of Appeal as “dismissed upon withdrawal by the Appellant”.

In a statement given to the Politico website, a Barclays spokesperson said: “Following the Supreme Court’s important clarification regarding motor finance lending, we have chosen to withdraw our outstanding legal challenge in order to focus on engaging with the FCA’s consultation and any redress scheme it may subsequently implement.”

Background

At the end of last year, Barclays lost a judicial review of a FOS decision relating to a 2018 car finance agreement, which found that the bank’s subsidiary, Clydesdale Financial Services, had mistreated a customer when it paid a discretionary commission of £1,326.60  to the dealer/credit broker Arnold Clark, plus second payment of £266.66 to the broker’s head office, without disclosing the arrangement to the customer.

In its evidence to FOS, Barclays said it complied with the legal and regulatory obligations that applied at the time. However, FOS argued Barclays had acted contrary to the guidance at CONC 4.5.2G, and also cited the “inequality of knowledge and understanding” created by the bank’s failure to disclose the structure of the discretionary commission arrangement in accordance with regulatory requirements and guidance (specifically, CONC 4.5.3R, CONC 3.7.4G(2) and Principles 7 and 8).

FOS ruled that as compensation, Barclays should pay the car buyer the difference between the payments made under the finance agreement at the agreed rate of 4.67% and the payments had the finance agreement been set up at 2.68%, representing the lowest flat interest rate permitted, plus interest at 8% on each overpayment.  

Appeal

Barclays’s appeal against the December decision was scheduled to be heard at the Court of Appeal on 1 July, but that hearing was postponed on the day, pending the outcome of the much wider Supreme Court motor finance mis-selling case.

This decision, described by the Court of Appeal judges as “highly relevant to setting the legal landscape for consideration of the Ombudsman’s decision and the rules and general principles”, was delivered a month later, on 1 August.

Now Barclays has abandoned its appeal, and is waiting for details of the FCA’s redress scheme.

FCA review

Following the Supreme Court’s decision, which largely overturned the previous Court of Appeal findings relating to dealers having a fiduciary duty to consumers, and that discretionary commission payments (DCAs) amounted to “bribery”, the FCA announced a consultation on a proposed industry-wide redress scheme.

This will cover DCAs where the they were not properly disclosed. The regulator will also consult on which non-DCAs should be included in light of the Supreme Court decision in the Johnson case, which made clear that non-disclosure of other facts relating to the commission can make the relationship unfair.

The FCA has indicated that any remedy suggested was unlikely to be higher than the full repayment of commission, and will also consult on an interest rate for each year of the scheme based on the average base rate that year plus 1%.

The regulator will consider both an opt-in or an opt-out scheme, and in its most controversial decision, has said it will include claims as far back as 2007, as this is consistent with the date at which complaints could be brought to FOS.

The regulator said the consultation will launch by early October, and that if the compensation scheme goes ahead, the first payments should be made in 2026.

In contrast to earlier estimates of the potential liabilities facing lenders, the FCA put the total cost of any scheme at between £9 billion and £18 billion, suggesting that most individuals will probably receive less than £950 in compensation per agreement.

“We stand ready to support lenders and brokers in voicing their concerns as we all work to implement an approach which is equitable for lenders and consumers alike.”