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Lloyds Banking Group PLC on Monday said it plans to book an additional £800 million provision related to car finance mis-selling. The Edinburgh-based lender said based on the Financial Conduct Authority’s proposals for a motor finance redress scheme, ‘in their current form’, the potential impact is at the ‘adverse end’ of the range of previous expected outcomes. The bank said this reflects the increased likelihood of a higher number of historical cases, particularly discretionary commission arrangements, being eligible for redress, including those dating back to 2007. The FTSE 100-listed bank also sees a ‘higher’ level of redress than anticipated in the previous scenario based provision, reflecting the FCA’s proposed redress calculation approach, which is less closely linked to actual customer loss than previously anticipated. Weighing these scenarios, Lloyds intends to take an additional charge of £800 million, topping up the bank’s existing provision of £1.15 billion. Lloyds noted the current FCA proposals remain a consultation and the ultimate outcome may evolve. However, the lender said the total £1.95 billion provision, including both redress and operational costs, represents the group’s ‘best estimate’ of the potential impact of the motor finance issue.‘ Shares in Lloyds Banking Group were up 1.2% at 83.90 pence each in London on Monday morning. The wider FTSE 100 was up 0.3%. On Thursday, Lloyds had warned of a ’material‘ new provision related to motor finance commission mis-selling. Last week, the FCA, the UK’s finance regulator, said car finance mis-selling will cost providers around £8.2 billion, with an additional £2.8 billion of administrative costs, taking the total to £11 billion. The UK’s financial regulator had previously estimated that the total cost of compensation could range from £9 billion to £18 billion. The FCA proposed a redress scheme after a court ruling in August which said that, while the car loans were not unlawful, claimants could still seek compensation on certain grounds. The FCA said its investigation had found ’widespread failures to adequately disclose the existence and nature of commission and contractual ties between lenders and brokers,‘ which led some customers to overpay on car loans. Under the proposed redress scheme, customers may be entitled to compensation if their car finance agreements involved discretionary commission arrangements, where dealers could increase interest rates to boost their commission, or where commission exceeded 35% of the total cost of credit or 10% of the loan value. The FCA last month had said that most people were likely to receive less than £950 for each agreement, but it now expects a figure of around £700 per customer. Copyright 2025 Alliance News Ltd. All Rights Reserved.
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