15th June 2024
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Banking giant Lloyds has set aside £450m to cover the potential cost of an investigation into car finance deals by the UK’s financial regulator.

A probe into whether people had been paying too much for cars was launched by the Financial Conduct Authority (FCA) last month.

Brokers who arranged car financing earned commission on the interest rates that they set for customers.

Lloyds revealed the provision as it announced a big rise in annual profits.

The bank said pre-tax profits jumped to £7.5bn last year, which was higher than expected and up 57% from the year before.

  • Watchdog to investigate compensation over car loans

The FCA announced last month that it would investigate whether people who believe they were charged too much for car loans were owed compensation.

Under what were called discretionary commission arrangements, some lenders had allowed car dealers to adjust interest rates on loans, which would improve the commission they received. In short, the higher the interest rate, the higher the commission.

As a result, these deals created an incentive for brokers to increase how much people were charged for their car loan.

In 2021, the FCA banned these arrangements, saying it would collectively save drivers £165m a year.

The amount that Lloyds eventually pays to cover compensation could be higher or lower than the initial amount it has set aside.

However, Lloyds is seen as the most exposed of the major banks to any claims, as it owns one of UK’s largest motor finance providers, Black Horse.

Some analysts have claimed that the total compensation bill could run into the billions.

Speaking to the BBC’s Today programme, Lloyds chief executive Charlie Nunn said: “The extent of any misconduct or loss on behalf of customers, if any, remains unclear so we welcome the FCA’s announcement a few weeks ago to look in to this to provide clarity for customer and the industry.”

Matt Britzman, equity analyst at Hargreaves Lansdown, said the £450m set aside by the bank was “less than some had feared but there will be question marks around how Lloyds has come to that figure”.

“Lloyds has been honest in saying the outcome of the review is largely unknown,” he added. “What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss.”

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Related Topics

  • UK banking
  • Companies
  • Lloyds Banking Group

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