Barclays PLC has started a legal fight against the Financial Ombudsman Service (FOS) over a car finance case. They are questioning a decision that said they didn’t act fairly towards a customer named Miss L. Miss L didn’t know her loan included a $2,000 commission.
This action by Barclays shows the worry among big banks in Britain about a big compensation bill. The case with Miss L and the commission paid to a credit broker is making banks think about following the rules and serving customers well.
Barclays’ legal fight shows banks are focusing more on legal battles and managing risks because of customer complaints and rules. This action by the bank is a big deal for the car finance industry. Banks are trying to deal with legal issues and avoid big claims from customers.
Barclays Mounts Judicial Review Against Financial Ombudsman Service
Barclays PLC has started a legal fight against the Financial Ombudsman Service (FOS). This is over a decision about a commission payment in a car finance case. The bank is arguing against a ruling for a customer named “Miss L”. This ruling involved a commission of nearly £1,600 paid to a credit broker in 2018.
The FOS says this case shows big worries about old motor finance commission deals and sales ways. This has led to a big review by the Financial Conduct Authority (FCA) in the industry. Barclays says its fight is just about Miss L’s case. They point out what they see as wrong legal interpretations.
Background on Miss L’s Case and Commission Payment Concerns
The FCA is looking into old commission deals in motor finance from 2007 to 2021. This comes from over 10,000 complaints about being charged too much for car loans. People are upset about this.
This check into commission payments has made big banks take action. For example, Lloyds Banking Group set aside £450 million. Close Brothers Group also planned to add £400 million to its capital because of this.
Consumer expert Martin Lewis thinks car finance mis-selling could mean big payouts for consumers. This could be even bigger than the PPI scandal payouts. It shows how important it is to watch over the car finance industry to protect buyers.
Barclays is fighting the FOS decision, not the people involved. They are following the Ombudsman’s decision but also backing the FCA’s wider check on the motor finance sector.
Financial Conduct Authority’s Industry-Wide Review of Motor Finance Practices
The Financial Conduct Authority (FCA) is looking into motor finance practices across the industry. They’re doing this because of many complaints from consumers. They’ve brought in EY, an accounting firm, to help with the review. This has made banks worry about the cost of possible compensation, which could be in the tens of billions.
The FCA found some worrying things in the motor finance industry. They say about 40% of the time, the interest on car finance deals comes from the dealer, not the customer’s credit score. This has raised concerns about possible conflicts of interest and mis-selling.
Now, more people are using finance to buy new cars, with 80% to 90% of new cars bought this way. This growth has led to a lot of complaints about mis-selling. Over a million complaints have been made through a tool on MoneySavingExpert.com.
The FCA’s findings have made banks and lenders set aside a lot of money for possible compensation. Lloyds Banking Group has put aside £450 million, Santander £1.1 billion, Barclays £350 million, and Close Brothers £250 million. Experts think the total cost for the industry could be between £6 billion and £16 billion. This is similar to the PPI scandal that affected the financial sector for years.
| Bank | Provision for Potential Car Finance Compensation |
|---|---|
| Lloyds Banking Group | £450 million |
| Santander | £1.1 billion |
| Barclays | £350 million |
| Close Brothers | £250 million |
The review has also raised concerns about the motor finance industry’s future. With 7 million households in the UK having motor finance agreements, there’s a worry about keeping finance affordable. There’s also a fear that car manufacturers might stop selling cars to the UK if there are big changes.
The FCA’s review is making the industry nervous about big changes and possible big payouts to consumers. The outcome could change the motor finance sector a lot and help restore trust in it.
Barclays Launches Legal Challenge Over Car Finance Complaint
Barclays has started a legal fight over a car finance complaint decision by the Financial Ombudsman Service (FOS). This move shows the big worries of major banks. They fear a huge bill for compensation.
Miss L took out a £19,133 car loan from Barclays in November 2018. The FOS said Barclays added a £1,327 “hidden commission” without telling her. The regulator said Barclays must pay Miss L this money as compensation.
Barclays says this fight is just about Miss L’s case. It doesn’t mean they disagree with the Financial Conduct Authority’s (FCA) review of car finance. The bank supports the FCA’s work to protect consumers and make car financing clear.
The FCA is looking into how car dealers used to add extra costs to loans. This review might end by September 2023. Many firms worry about the costs of this review. They’re getting ready for possible claims from customers.
Lloyds Banking Group has set aside £450 million for claims. Close Brothers Group has added £400 million to its reserves. These steps show banks know they might have to pay a lot because of the FCA’s review.
Barclays’ fight over Miss L’s complaint shows how big the issue is in car financing. As the FCA reviews this, banks must deal with legal issues and protect consumers. They need to handle possible claims too.
Other Banks’ Provisions and Preparations for Potential Claims
The Financial Conduct Authority (FCA) is looking into the car finance industry. Big banks like Lloyds Banking Group and Close Brothers Group are getting ready. They’re making big moves to deal with possible claims from customers.
Lloyds Banking Group’s £450 Million Provision
Lloyds Banking Group, a big bank in the UK, has set aside £450 million. This is for possible payouts from the FCA’s check on interest-linked commission payments. It shows the bank is getting ready for big costs from this issue.
Close Brothers Group’s £400 Million Capital Raise
Close Brothers Group, a smaller bank focused on motor finance, has a different plan. They’re planning to save money by slowing down loans and stopping dividend payments. This move helps the bank stay strong during the FCA’s car finance review.
Lloyds and Close Brothers Group are showing how banks are dealing with possible claims and regulatory challenges in car finance. They’re focusing on regulatory compliance and risk management. This is key for handling the FCA’s probe.
“The scale of the provisions and capital-raising measures undertaken by major banks like Lloyds and Close Brothers underscores the seriousness of the FCA’s investigation and the potential financial implications for the automotive financing industry.”
Comparisons to PPI Scandal and Potential Consumer Compensation
The Financial Conduct Authority (FCA) is looking into car finance practices. They see big similarities to the PPI scandal in the UK banking world. Consumer expert Martin Lewis thinks car finance could lead to huge payouts, maybe even bigger than the PPI scandal.
The PPI scandal led to banks paying out nearly £50 billion. Over 64 million policies were mis-sold. Now, the car finance issue could cost between £8 billion to £13 billion. Banks might have to pay a lot.
| Industry | Estimated Compensation Costs | Affected Consumers |
|---|---|---|
| PPI Scandal | £48.5 billion | 64 million policies sold |
| Car Finance Investigation | £8 billion – £13 billion | Over 1 million complaint letters submitted |
The FCA started looking into car finance after a customer was wrongly sold a car finance deal by Barclays Partner Finance. This led to a legal fight with the Financial Ombudsman Service (FOS). It shows there might be more cases of unfair practices, making customers pay too much for their car loans.
This could mean big payouts for consumers, similar to the PPI scandal. The FCA’s investigation could lead to big changes in the car finance industry. The industry might have to pay a lot and follow stricter rules to fix the problem.
“Car finance mis-selling could be the second biggest reclaim payout in UK history after the PPI scandal.”
– Martin Lewis, Consumer Expert
Legal Implications and Regulatory Scrutiny on Automotive Financing
Barclays has launched a legal challenge against the Financial Ombudsman Service (FOS). This shows the legal issues and more watchful eyes on financial firms in car financing. The Financial Conduct Authority (FCA) is checking all firms because of worries about unfair car finance deals.
This review is looking at how firms act and protect consumers. It’s making firms think about being fair and open. Banks and lenders are getting ready for possible big costs because of this.
They’re setting aside money, like Lloyds Banking Group’s £450 million, and getting more capital. Close Brothers Group is raising £400 million to deal with these risks.
The results of these legal and regulatory checks will change the financial sector a lot. Firms need to follow more rules and protect consumers better. They must be open and fair to avoid big legal issues and fines.