According to Zhichun Finance APP, Barclays (BCS.US) lost a key court lawsuit on Tuesday regarding its auto loan practices, which brought a new blow to the banking industry in the United Kingdom, as they face potential auto loan claims amounting to billions of British Pounds.

Barclays appealed a ruling that stated it failed to treat fairly a customer who purchased a used car. Lawyers previously stated that this ruling, along with another legal lawsuit soon to be submitted to the Supreme Court in the United Kingdom, would serve as a template for how the UK's financial industry handles complaints in the future.

So far, the courts have sided with consumers, determining that lenders paying commissions to Car Dealers/auto Retailers for issuing loans without consumer consent is illegal. If the judge rules against the lenders, they could face claims of up to £38 billion ($48.2 billion). The stock prices of Specialty Finance companies and Banks in the United Kingdom fell after the ruling was announced.

On Tuesday, a judge in London dismissed Barclays' appeal, stating that the Financial Ombudsman Service (FOS) has the authority to make rulings that favor consumers.

Judge Timothy Kerr stated, "The brokers choose to raise the interest rates, which increases the borrowing costs for clients. From the private interests of lenders and brokers, this is the case regardless of whether the client receives more compensation from other aspects of the transaction."

As a result of the ruling, Barclays' stock price fell by 2%, Close Brothers Group Plc's stock price briefly dropped by 6.5% before recovering, and the stock price of the largest auto finance supplier in the United Kingdom, Lloyds (LYG.US), declined by 1.4%.

This ruling was made ahead of another appeal regarding auto finance transaction commissions that will be brought before the United Kingdom Supreme Court early next year. Meanwhile, FOS stated regarding the Barclays case that customers may have ultimately paid higher interest rates due to undisclosed commission arrangements between the bank and brokers.

Barclays stated: "As we previously mentioned, this ruling pertains to a specific case, and we do not agree with the FOS's decision." The bank added that it plans to appeal.

The United Kingdom Financial Conduct Authority banned so-called free commission arrangements in 2021, stating that such practices encourage car dealers to increase the borrowing costs for customers. Previously, car dealers could typically earn thousands of British Pounds for themselves and banks by raising the interest rates offered to buyers.

Nevertheless, Barclays has thus far chosen not to allocate funds for the related investigation, while Lloyds has set aside 0.45 billion British Pounds to cover potential compensation and other costs. Close Brothers has one-fifth of its loans involving auto finance and stated that it will not pay any dividends for the fiscal year 2024.