Barclays has lost a pivotal legal challenge that strengthens the position of car finance customers seeking compensation for mis-sold loans.

In a ruling with far-reaching implications for UK lenders, the High Court rejected the bank’s judicial review of a Financial Ombudsman Service (FOS) decision, potentially opening the floodgates to billions of pounds in claims.

At the heart of the case was a £1,327 compensation order issued to Barclays in January, stemming from a complaint by Jenna Lewis. In 2018, Lewis purchased a second-hand Audi for £19,133, financed partly by a £13,333 Barclays loan arranged through car dealer Arnold Clark. Lewis later argued that she had not been properly informed of the commission arrangement: the dealer had unfairly increased the interest rate to boost its own commission—an arrangement she alleged was never clearly disclosed.

The ombudsman’s finding, mirrored in a similar case against Lloyds, contributed to the Financial Conduct Authority (FCA) launching a broader investigation into historical mis-selling across the sector. Discretionary commission models, under which dealers benefited by charging customers higher rates, were banned at the end of 2020. Before the ban, 14.6 million car loans were written under such agreements, involving £8.1 billion in bank-paid commissions.

Barclays, although not seeking to overturn Lewis’s individual compensation, pursued a judicial review to clarify legal interpretations of the underlying consumer credit rules. Mr Justice Kerr dismissed the bank’s challenge “on all grounds,” a verdict that rattled share prices across the industry. Barclays shares fell 1.3%, while Lloyds Banking Group and Close Brothers—also implicated in the broader mis-selling scandal—saw similar declines.

A Barclays spokesman expressed disappointment and confirmed plans to appeal the decision. The FCA’s ongoing investigation will be critical to determining just how extensively lenders might be exposed. RBC Capital Markets estimates that resulting compensation could run as high as £6 billion.

Market observers say much hinges on legal battles still to come. In October, the Court of Appeal ruled that any undisclosed commission, not just discretionary arrangements, could be unfair to consumers. If the UK Supreme Court upholds that ruling next year, the liability for banks could soar beyond even today’s daunting projections.

For now, the Barclays loss provides clarity on one point: as regulators and courts continue to scrutinise car finance agreements, major lenders face a mounting challenge in containing the financial and reputational costs of past sales practices.

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Barclays faces blow over car finance mis-selling as court upholds ombudsman ruling