One of the UK's largest banks has announced that it will set aside a further £800million to cover potential compensation costs linked to the car finance misselling scandal.
Lloyds Banking Group has reserved £800million in response to the Financial Conduct Authority's announcement regarding redress from the car finance scandal.
This will take the bank's total provision to a staggering £1.95billion, as more than 14 million claims could be eligible for compensation.
The FCA announced last week that it would be looking to set up a compensation scheme in response to millions of claims that alleged that lenders and brokers did not offer fair deals to motorists.
It found that lenders failed to tell motorists about commission payments to brokers when a driver was buying car finance.
The regulator outlined that it would consider claims made between April 2007 and November 2024 in the compensation case, with payments expected next year.
Under the terms laid out by the FCA, lenders could pay out around £8.2billion in redress to motorists, at an average of roughly £700 per agreement.
The FCA called on the industry to provide feedback to a consultation to inform the future of the scheme, with Lloyds saying it would argue a number of points.
Lloyds Banking Group warned that the car finance scandal compensation scheme could cost it almost £2billion
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Lloyds Banking Group said: "The Group remains committed to ensuring customers receive appropriate redress where they suffered loss, however, the Group does not believe that the proposed redress methodology outlined in the consultation document reflects the actual loss to the customer.
"Nor does it meet the objective of ensuring that consumers are compensated proportionately and reasonably where harm has been demonstrated.
"In addition, the approach to unfairness in the redress scheme does not align with the legal clarity provided by the recent Supreme Court judgment in Johnson, in which unfairness was assessed on a fact-specific basis and against a non-exhaustive list of multiple factors.
"The Group will make representations to the FCA accordingly," a spokesperson for Lloyds Banking Group said earlier today.
The FCA outlined its plans for the car finance scandal compensation scheme last week
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Other major lenders have set aside billions of pounds in anticipation of the car finance scandal compensation scheme, which has affected share prices.
Close Brothers has a £165million provision for the redress scheme, and saw its shares fall seven per cent when it stated that an increase was likely.
The FCA highlighted that around 44 per cent of all agreements made since 2007 would be considered unfair because they involve "inadequate disclosure" of certain factors. This includes:
- A discretionary commission arrangement
- High commission - Where the commission is equal to or greater than 35 per cent of the total cost of credit and 10 per cent of the loan
- Contractual ties that gave a lender exclusivity or a right of first refusal
The car finance scandal is expected to be worth around £8.2billion | GETTYThe regulator also noted that lenders could end up paying £9.7billion in compensation in the unlikely event that 100 per cent of drivers are part of the scheme.
The £8.2billion total is part of an estimate that around 85 per cent of eligible consumers take part, whereas a 70 per cent uptake rate could see just £6.8billion owed.
Initial estimates from the car finance scandal suggested that compensation could lead to motorists being owed around £18billion, although this has since been revised.
Some experts even claimed that the scandal could be on a similar level to the outcome of the PPI scandal, which has seen around £40billion given out in compensation.