(Alliance News) - Barclays PLC has launched a legal challenge over a ruling that it unfairly paid commission to a car finance broker, Sky News reported late Monday.
The report suggested the move underlines growing anxiety among Britain's biggest lenders about the potential scale of an industry-wide compensation bill.
Sky said Barclays is mounting a judicial review against the Financial Ombudsman Service over a decision last June that the bank "failed to act fairly and reasonably" in the case of a customer - known only as Miss L - who was not made aware that a loan agreement she entered into included a commission payment worth nearly GBP1,600.
City sources said that Barclays had recently decided to launch a legal fight but insisted that its challenge was isolated to the specific case of Miss L because of what it believed were a number of misinterpretations of the law.
According to the FOS, Miss L's case involved a commission paid by Barclays Partner Finance to a credit broker when she took out a loan to buy a car in 2018.
https://news.sky.com/story/barclays-mounts-legal-challenge-over-car-finance-claim-13111056
The case was one of two highlighted by the Financial Conduct Authority in January when it announced that it was responding to a large number of complaints by reviewing historical motor finance commission arrangements and sales "across several firms".
The review has prompted several companies to make provisions against potential exposure to claims.
In March, Lloyds Banking Group PLC booked a GBP450 million provision in the wake of the review.
"There remains significant uncertainty as to the extent of any misconduct and customer loss, if any, the nature of any remediation action, if required, and its timing. Hence, the impact could materially differ from the provision, both higher or lower," it cautioned.
The UK financial services watchdog in January had said it is probing whether compensation could be due for people who were potentially overcharged for car loans.
If it finds misconduct, those affected will be compensated. The FCA said it heard from over 10,000 people who are concerned they were charged too much. It added there could be even more yet to come forward.
In March, Close Brothers Group PLC, which has a motor finance arm, revealed plans to bolster its finances by GBP400 million as it prepares for the impact of the investigation.
In February, the merchant bank had said it would not pay a dividend for the current financial year, which runs to July 31, and the reinstatement of payouts for financial 2025 will be reviewed once the FCA has concluded its probe.
At the time, Close Brothers said the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated.
Consumer expert Martin Lewis has suggested that car finance mis-selling could be the "second biggest reclaim payout in UK history" after the personal protection insurance scandal.
That saw UK banks pay out billions of pounds in compensation to customers who were mis-sold PPI from the mid-1990s.
Shares in Barclays fell 0.6% to 192.10 pence in London on Tuesday. Lloyds eased 0.2% to 53.62p and Close Brothers advanced 0.5% to 442.80p.
By Jeremy Cutler, Alliance News reporter
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