High Court rules against Barclays in respect of motor finance commissions

 On 17 December 2024, the High Court (Mr Justice Kerr) handed down its decision in R (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd [2024] EWHC 3237 (Admin).

The case concerned the payment of a “discretionary commission” by a lender (Clydesdale, trading as Barclays Partner Finance) to a broker (Arnold Clark) as part of a consumer loan for the purchase of a car. The commission arrangements allowed the broker to select the interest rate and receive a higher commission as a result.

The borrower, Ms Lewis, complained that this commission was not adequately disclosed to her. The Financial Ombudsman Service (“FOS”) determined the complaint as one of its “lead” complaints ahead of thousands of similar complaints. The FOS found that the payment of the commission was in breach of the FCA’s commission disclosure rules, the FCA Principles for Business and amounted to an unfair relationship under the Consumer Credit Act 1974. It therefore awarded compensation.

Barclays challenged the FOS decision by way of judicial review on three grounds. The Financial Conduct Authority (“FCA”) made submissions as an interested party in respect of the interpretation of the relevant rules and statutory provisions (Grounds 1 and 3).

Following a 3 day rolled-up hearing, the Court ruled in favour of the FOS and FCA on all issues. In particular, the Court endorsed the FCA’s submissions in respect of the interpretation of FCA rules as well as the Consumer Credit Act 1974. The claim was dismissed.

The payment of commissions to broker dealers by motor finance lenders is the subject of market-wide investigations by the FCA. There are currently hundreds of thousands of consumer complaints and pending County Court claims for allegedly secret commissions paid to brokers. The private law issues arising in this context (by reference to fiduciary obligations) are also the subject of a recent decision from the Court of Appeal (see [2024] EWCA Civ 1282, on appeal to the Supreme Court where the FCA is applying to intervene).

The judgment of the High Court is here.

On 24 December 2024, the Court granted Barclays permission to appeal to the Court of Appeal in recognition of the impact of its reasoning on the outcome of other cases.

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