Barclays loses UK motor finance challenge as redress looms

By Sam Tobin and Kirstin Ridley

LONDON (Reuters) -Barclays lost its bid to overturn a ruling on British motor finance commissions on Tuesday, in a High Court decision that weighed on bank shares as investors fretted about a potential multibillion pound consumer redress plan.

The case comes as the Financial Conduct Authority (FCA) considers an industry-wide compensation scheme which could become even more costly after London’s Court of Appeal ruled in October that it was unlawful for car dealers to receive commissions from banks without a customer’s informed consent.

The High Court on Tuesday dismissed a challenge by Barclays Partner Finance to a ruling by the Financial Ombudsman Service (FOS) that one of its customers was unfairly charged commission of just over 1,300 pounds ($1,650) on a loan in 2018.

Barclays said it was disappointed and would appeal.

The FCA, however, welcomed “additional clarity” the judgment brought to a wave of customer complaints about discretionary commission arrangements, while the FOS said the ruling had endorsed its approach.

“We are now carefully considering the judgment and what that means for other similar cases that are with our service,” said Deputy Chief Ombudsman James Dipple-Johnstone.

Barclays shares were 1.2% lower at 1340 GMT, underperforming the STOXX banking sector index. The ruling also weighed on banks including Lloyds and Close Brothers.

Total industry costs for the probe into historic motor finance sales practices could reach 30 billion pounds, ratings agency Moody’s said last month

Lloyds and the UK arm of Spain’s Santander have already set aside 450 million pounds and 295 million pounds respectively to cover possible motor finance-related costs.

Analysts, however, noted that the scope of the issue will, in part, be dealt with by the Supreme Court next year.

Stephen Haddrill, the director general of the Finance & Leasing Association trade body, said he looked forward to the top court discussing similar issues in early 2025.

Lawyers for both Barclays and the FCA accepted at a hearing in October the case would have wider implications.

Barclays’ appeal in October was heard weeks before the Court of Appeal’s landmark ruling in favour of claimants’ appeals in three linked cases involving Close Brothers and South African lender FirstRand.

That ruling has potentially widened the scope of an FCA review that is examining ‘hidden’ historic commissions linked to financing of motor purchases from banks and other lenders, which are hoping the Supreme Court will reverse the October decision.

($1 = 0.7880 pounds)

(Reporting by Sam Tobin and Kirstin Ridley; editing by William James and Alexander Smith)