Barclays lost a bid to overturn a ruling on UK 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 that 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.
Bank of Ireland has a 2 per cent share of the UK motor finance market and analysts at RBC Capital Markets, and Autonomous Research estimates the Irish lender faces between €950 million and €1 billion of total costs over the coming years stemming from the industry-wide investigation. That includes fines, redress and administration expenses.
The high court in London 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 (€1,570) 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 (DCAs), 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.
Total industry costs for the inquiry into historic motor finance sales practices could reach £30 billion, ratings agency Moody’s said last month.
Lloyds and the UK arm of Spain’s Santander have already set aside £450 million and £295 million respectively to cover possible motor finance-related costs. Bank of Ireland has not yet disclosed any such provisions.
Analysts, however, noted that the scope of the issue will, in part, be dealt with by the UK 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. – Reuters
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