Lloyds, Barclays CEOs expand on costs of preparing for Supreme Court outcome

A “very significant” portion of the £450 million that Lloyds Bank set aside last year to potentially compensate customers mis-sold motor finance is earmarked for complaints processing, said chief executive Charlie Nunn.

“That £450 million provision incorporates two things. One is the operational expenses of responding to claimant law firms,” Nunn said, giving evidence to the Treasury Committee on May 20. “We have had a very large number of complaints that aren’t even from our customers, so we know there are significant operational expenses in processing and trying to help customers. I don’t know if they even had a policy with us, but there is a very high percentage of those.”

Meanwhile, Barclays UK has a “few hundred staff” processing complaints, chief executive Vim Maru told the committee.

“We have had customer inquiries as well as inquiries from claims management companies, as Mr Nunn talked about, and we have sufficient resources to deal with those. The harder ones to deal with are cases that are 10 or 20 years old, and that is obviously where a lot of effort goes into trying to find those policies as appropriate,” Maru said.

The Financial Ombudsman Service (FOS) has also reported a surge in motor finance complaints from claims management firms ahead of the introduction of case management fees for such firms.  

Mis-selling?

In January 2024, the FOS upheld complaints from two consumers in relation to the sale of motor finance involving discretionary commission arrangements (DCAs). DRN-4188284 involved Lloyds-owned Black Horse Financial Services, and DRN-4326581 involved Clydesdale Financial Services, which is part of Barclays.

DCAs allowed the motor broker to earn a higher rate of commission in return for setting a higher interest rate for the customer. In 2019, the FCA announced that from 2021 it would ban DCAs, which would save consumers a collective £165 million a year.

Barclays took the FOS to judicial review but lost in the High Court in December 2024, with the case scheduled to be heard by the Court of Appeal in July.  

Lloyds has never challenged the FOS decision. The bank did not respond to a request from Compliance Corylated  to know why it had not challenged DRN-4188284.

Also in July, the Supreme Court is set to rule on a separate track of motor finance claims. If it upholds the decision of the lower court this will extend the scope of redress to motor finance sales beyond those involving DCAs, to potentially any loan in which commission arrangements were not fully disclosed to a customer.

Lloyds revised its initial £450 million provision — adding an additional £700 million — following the Court of Appeal judgment in October 2024, while in February 2025, Barclays set aside £90 million to pay redress.

Ombudsman cases

There are tens of thousands of cases sitting at the FOS awaiting the Supreme Court decision. However, there are also an unknown number of cases where the FOS previously ruled for financial firms that could be reopened as a result of the decision. Prior to January 2024, the FOS had rejected complaints about DCAs.

This week, the FOS said it was keeping matters under review and that the court judgments would inform its final approach to past cases.

In January 2024, the Financial Conduct Authority (FCA) paused its requirement for firms to deal with motor financial complaints within eight weeks, following the FOS decisions in Black Horse and Clydesdale . It has been carrying out a review of motor finance sales, and said in March that it would decide within six weeks of the Supreme Court decision if an industry-wide redress scheme was required.

The FCA has not made a decision about cases previously decided in favour of lenders. If it decides to proceed with a redress scheme, following the Supreme Court decision, it will provide information on what it means for previously rejected complaints at that time.