Yahoo Finance Barclays launches challenge against car finance mis-selling claim
Barclays has launched a legal challenge over a ruling that it unfairly paid commission to a car finance broker.
Thousands of drivers could be entitled to payments over fear that motorists paid billions of pounds more than necessary to dealers and brokers for mis-sold car finance.
Consumer experts have said the total compensation bill could be similar to the PPI scandal.
In around 40pc of cases, regulator Financial Conduct Authority (FCA) found the interest rate on car finance deals was at the whim of the dealership. Between 80pc and 90pc of new cars have been bought using car finance in recent years, including personal contract purchase (PCP) and hire purchase.
The case of Miss L, was highlighted by the FCA alongside one other involving Lloyds Banking Group, when it announced a probe into mis-selling in January.
She was not aware that the loan agreement involved a £1,600 commission to be paid by Barclays Partner Finance to a credit broker when she took out a loan to buy a car in 2018, the Financial Ombudsman Service (FOS) found.
The second landmark case, which paved the way for thousands of new claims to be heard going back to 2007, was against Black Horse, a subsection of Lloyds Banking Group, and heard that Mrs Y, who took out a hire purchase agreement, was charged 5.5pc interest, but could have paid just 2.49pc.
A Lloyds Banking Group spokesman confirmed to the Telegraph that it is reviewing its own case against the FOS.
Car dealers, who act as brokers for lenders, were pressured to apply higher rates to drivers in return for larger commission payments, it is alleged.
The so-called discretionary commission arrangements were banned by the city regulator in 2021, and in January it announced that it would launch a probe into commission arrangements dating back to 2007.
While the regulator did not name and shame the individual firms it would be examining, it did engage leading accountancy firm EY to carry out what is known as a “skilled person’s review” into the problem. A decision on whether to approve mass payouts is due in September.
It comes after Lloyds Banking Group put aside £450m for potential compensation arising from the FCA’s probe into interest-linked commission payments in its annual results in February, as concerns grow about payouts.
The motor finance industry could be on the hook for as much as £16bn as a result of the scandal, investment bank RBC analysis suggested.
Consumer champion Martin Lewis has said that motorists could be entitled to one of the largest payouts in UK history, after more than one million complaints have been submitted through an online tool on his MoneySavingExpert.com website.
He said: “In value terms, car finance mis-selling is potentially going to be the second biggest reclaim payout in UK history – possibly over £10bn repaid – which could even provide a fillip to the economy as PPI did.”
A Barclays spokesman said that it did not agree with the FOS decision in the case in question, and therefore the bank was challenging it.
But they continued: “This challenge relates to a single, specific case and we continue to support the FCA’s review into historic motor financing arrangements.
“Due to the ongoing nature of this case, we cannot share anything further at this time.”
A Lloyds Banking Group spokesman said: “We are currently reviewing the recent FOS decision and will support the FCA with its industry review.”
A spokesman for the Financial Ombudsman Service said: “When people take out a car loan it’s imperative they are treated fairly and the financial implications are totally transparent.
“We recently resolved two complaints where we found that the way the commission arrangement between the lender and the car dealer worked was unfair on the consumer. These types of discretionary commission arrangements were banned by the Financial Conduct Authority in 2021.”
The spokesman continued: “It’s disappointing that we’ve now received a legal challenge on one of these decisions. In the meantime, it is essential that firms continue to investigate and respond to other complaints promptly, whilst complying with their regulatory obligations.”
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