On December 17, 2024, the High Court delivered another landmark judgment affecting the motor finance industry, this time in the case of Clydesdale Financial Services Ltd t/a Barclays Partner Finance v Financial Ombudsman Service Ltd (Case No. AC-2024-LON-001124). This case once again highlighted the entrenched issues of non-disclosure and unfair practices within the motor finance industry. The judgment also underscored the industry’s persistent, and ultimately futile, efforts to resist accountability for its systemic failures.

Background and Key Issues

The dispute centred around a 2018 motor finance agreement where the dealership, Arnold Clark, acting as a credit broker for Barclays Partner Finance, increased the interest rate on the loan offered to the customer from the base rate of 2.68% to 4.67%. This adjustment was not disclosed to the consumer, who later discovered the practice and lodged a complaint with the Financial Ombudsman Service (FOS).

This increase in the interest rate directly benefited the Arnold Clark, as it was part of a Discretionary Commission Arrangement (DCA) that allowed the dealerships to receive higher commissions based on the interest rates offered to consumers. The case highlighted the fact that the terms of the brokerage agreement expressly prohibited altering interest rates based on the assumption that a consumer could afford to pay more, or was willing to pay more.

However, Arnold Clark disregarded these terms, effectively prioritising its financial incentives over the best interests of the consumer. In addition, Barclays Partner Finance also appeared to turn a blind eye to this, likely incentivised by the fact it would generate more profit from the consumer too via the increased interest rate charged. This lack of disclosure and unfair practice became the focal point of both the FOS decision and the subsequent High Court review.

The High Court’s Findings

The High Court upheld the FOS ruling, delivering a scathing rebuke of the practices used in this case. Key findings included:

• Unfair Relationship: The non-disclosure of the increased interest rate created an “unfair relationship” under the Consumer Credit Act 1974. The consumer was not provided with critical information that would have allowed for informed decision-making.
• Breach of Brokerage Terms: The dealership acted outside the bounds of its agreement by increasing the interest rate without justification or consumer consent. This amounted to a breach of its obligations as a credit broker.
• Systemic Failure of Oversight: Barclays Partner Finance, as the lender, bore ultimate responsibility for the dealership’s actions. The lender had created and maintained a commission model that inherently incentivised such misconduct, failing to implement adequate safeguards or transparency measures.

Delaying Justice Through Litigation – A Losing Battle

This case is emblematic of the motor finance industry’s ongoing attitude to systemic issues tied to undisclosed commissions. While the FCA banned discretionary commission models in January 2021, this ruling makes it clear that past misconduct continues to haunt the industry.

Instead of embracing transparency and compensating consumers for the harm caused, many motor finance companies, including Barclays in this instance, appear committed to delaying justice. By challenging FOS rulings and pushing cases into the courts, the industry is expending resources to resist accountability rather than resolving consumer grievances.

This approach, while temporarily stalling regulatory repercussions, further erodes public trust and highlights the industry’s unwillingness to prioritise fairness. It also exacerbates the financial and emotional toll on consumers who are forced to endure lengthy disputes to seek redress.

Wider Implications for Consumers and the Industry

The judgment serves as yet another defeat for the motor finance sector, reinforcing the courts’ and regulators’ stance against undisclosed commission practices. The key message is clear:

• Transparency is Non-Negotiable: Consumers have the right to be fully informed about the costs and financial structures of agreements, including any commissions paid to brokers.
• Misconduct Should Not Be Tolerated: Efforts to obscure unfair practices, whether by commission arrangements or litigation, will be should be scrutinised and penalised to the extent that a true deterrent is in place to guard against future misconduct.
• Rebuilding Trust is Critical: The industry’s current strategy of resistance and delay only worsens its reputation. To move forward, companies must commit to reform, prioritising fairness and transparency in all dealings.

Conclusion

The High Court’s judgment in this case should serve as a watershed moment for the motor finance industry. Yet, the industry’s continued attempts to litigate against regulatory and consumer protections suggest it is still fighting a losing battle. By resisting accountability, the sector risks deeper regulatory intervention, greater financial penalties, and further erosion of consumer trust.

For consumers, the judgment is a reminder of the importance of vigilance when entering into finance agreements and a hopeful sign that courts and regulators are committed to ensuring fairness. However, the industry’s repeated attempts to delay justice highlight the need for ongoing pressure from both regulators and the public to bring about meaningful change.