Lloyds Allocates £450 Million for Investigation into Car Finance Practices

Lloyds Allocates £450 Million for Investigation into Car Finance Practices

Lloyds Allocates £450 Million for Investigation into Car Finance Practices.

Lloyds, one of the UK’s banking giants, has allocated £450 million to cover potential costs arising from an investigation into car finance deals by the Financial Conduct Authority (FCA). Last month, the FCA initiated the probe to examine whether consumers were overcharged for cars, focusing on commissions earned by brokers who arranged car financing. With its ownership of Black Horse, one of the UK’s largest motor finance providers, Lloyds is considered particularly exposed to potential compensation claims.

The investigation revolves around discretionary commission arrangements, where brokers could adjust loan interest rates, earning higher commissions with higher interest rates. This incentivized brokers to increase the cost of car loans, impacting consumers. In 2021, the FCA banned these arrangements, estimating that the move would collectively save drivers £165 million annually.

Last month, the FCA announced it would investigate whether individuals who believe they were charged too much for car loans were owed compensation. The Financial Ombudsman revealed it had received 17,000 complaints about the motor finance commission. Lloyds, acknowledging the uncertainty of the situation, has set aside £450 million to cover potential costs, a figure that could be adjusted based on the outcome of the investigation.

This development has prompted comparisons to the payment protection insurance (PPI) mis-selling scandal, which resulted in substantial payouts by banks. However, Lloyds’ Chief Financial Officer, William Chalmers, emphasized that the car finance probe differs from previous remediations. While the set-aside amount is lower than some expectations, questions linger about how Lloyds arrived at this figure. According to analysts, the review’s outcome remains largely unknown, and Lloyds acknowledges the uncertainty surrounding the potential financial impact.

In addition to the car finance probe, Lloyds disclosed that it is subject to another investigation by the FCA, examining the group’s compliance with money laundering rules and regulations. The bank asserts full compliance with this investigation but cannot ascertain its potential financial impact.

In its annual report, Lloyds highlighted a significant rise in annual profits, with pre-tax profits reaching £7.5 billion last year, a 57% increase from the previous year. The bank’s positive financial performance is attributed, in part, to the increase in interest rates over the past couple of years. Despite this, Lloyds CEO Charlie Nunn acknowledged challenges faced by some customers, particularly those struggling with the rising costs of inflation and increased mortgage expenses.

While the outcome of the FCA’s investigations remains uncertain, Lloyds anticipates low but positive growth in the UK’s economy this year. The bank, which also owns brands like Halifax, Bank of Scotland, and Scottish Widows, is cautiously optimistic about the economic outlook, noting the economy’s resilience but acknowledging the financial challenges some customers face.


Related Posts

Illuminating the Promise of Africa.

Receive captivating stories direct to your inbox that reveal the cultures, innovations, and changemakers shaping the continent.