In a significant blow to the UK banking sector, Barclays has announced plans to appeal after losing a crucial High Court case concerning car loan commissions. The ruling threatens to unleash billions of pounds in compensation claims against British banks.
The High Court dismissed Barclays’ challenge against a Financial Ombudsman Service decision that found the bank had unfairly added a £1,300 commission to a car loan in 2018. The case centred on the bank’s Clydesdale unit creating what the court deemed “an unfair treatment” by offering higher commissions to dealerships for arranging loans with elevated interest rates.
The ruling’s implications are far-reaching, with Moody’s analysts estimating potential compensation payments of up to £30 billion across the UK banking sector. This figure positions the car loan controversy on par with the payment protection insurance scandal that hampered the sector’s profitability for nearly a decade.
The specific case involved an Audi purchase in Liverpool, where the dealership could increase interest rates from 2.68 per cent to 15.25 per cent. The court found that the resulting commission was only disclosed in “threadbare statements” within the loan agreement.
Major banks including Close Brothers, Lloyds Banking Group, and Santander UK have seen their shares decline following the ruling. Lloyds has already set aside £450 million for potential costs, while Santander UK has allocated £295 million in preparation for possible claims.
The Financial Conduct Authority banned discretionary commission arrangements in 2021, but their investigation extends to practices before the ban, potentially creating substantial financial obligations for providers. The Supreme Court’s pending review of an earlier Court of Appeal ruling could further expand banks’ liability for undisclosed or partially disclosed commissions.
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