Lloyds Banking Group has allocated an additional £800m to cover the estimated expenses related to the car finance mis-selling scandal. This brings the total provision to £1.95bn. The bank has been evaluating the impact since the Financial Conduct Authority (FCA) announced last week that it was considering a compensation scheme, potentially affecting up to 14.2 million car finance agreements.
The FCA previously discovered that many lenders were not disclosing the commission paid to brokers, resulting in customers potentially overpaying between April 2007 and November 2024. Eligible customers may receive an average of £700 each under the proposed scheme. Lloyds stated on Monday that it would participate in the consultation to present various arguments.
The Group emphasized its commitment to ensuring customers receive suitable redress for any losses suffered. However, it expressed reservations about the proposed redress methodology outlined in the consultation document, believing it does not accurately reflect the actual customer losses. Lloyds also raised concerns about the fairness of the redress scheme, citing the recent Supreme Court judgment in Johnson as a reference point.
Shares in Lloyds, which initially declined when the bank warned of a potential «material» increase in provisions, rose by over 0.5% on Monday. The estimated compensation amount was lower than what some financial analysts had predicted, but the shares have still increased by more than 50% year-to-date.
Another listed lender impacted by car loan mis-selling, Close Brothers, is expected to increase the amount set aside for provisions. Currently, Close Brothers has a £165m provision and saw its shares drop by 7% after admitting that an increase in provisions is likely following the completion of its analysis of the compensation consultation documents. Car finance represents approximately a quarter of Close Brothers’ total loan book.
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