Barclays is challenging the Financial Ombudsman Service over the car finance commission’s claim

Barclays, a leading banking giant, has launched a legal challenge against a ruling by the Financial Ombudsman Service (FOS) regarding a car finance commission payment, in a sign of growing concerns among major lenders over potential compensation liabilities.

The legal dispute centers on a decision by the FOS last June, which found that Barclays had unfairly paid commission to a car finance broker in the case of a customer referred to as Miss L. The client was reportedly unaware of a commission of almost £1,600. included in her loan agreement when purchasing a car in 2018.

Financial industry sources revealed that Barclays has chosen to conduct a judicial review in response to what it sees as several misinterpretations of the law in Ms L’s case. However, the bank continues to insist that its challenge is specific to this case and is not indicative of broader concerns within the sector.

Ms L’s case was highlighted by the Financial Conduct Authority (FCA) in January during a review of historical commission schemes for car finance and sales across multiple companies. Although the FCA did not explicitly name the companies investigated, it has engaged EY to conduct a thorough investigation into these practices.

The FCA’s investigation has sparked fears among bank investors about potential compensation liabilities, similar to those of the payment protection insurance (PPI) scandal. For example, Lloyds Banking Group has provided £450 million in its annual results to cover potential compensation resulting from the FCA investigation.

While Lloyds Banking Group refrained from commenting on potential legal action, Barclays has taken a proactive stance by challenging the FOS decision. The bank highlights its commitment to supporting the FCA’s review of historic car finance schemes.

A spokesperson for Barclays said: “We disagree with the Financial Ombudsman Service’s decision in this matter and are therefore challenging it.” The spokesperson reiterated Barclays’ cooperation with the FCA’s wider investigation while ensuring no customer affected by the challenge would suffer any financial loss.

Barclays’ legal action underlines the increased scrutiny banks face over their past practices, with the outcome potentially shaping the landscape of Britain’s car finance industry.