Lloyds Bank shares edge up despite £800m motor finance hit
Lloyds Banking Group has taken a swipe at the City watchdog after being forced to hike its provisions for the motor finance scandal to £2bn.
The banking giant said the redress scheme was not proportional or reasonable in ensuring customers were rightly compensated and it did not reflect the “actual loss” of borrowers.
It added the Financial Conduct Authority’s approach to “unfairness” did not align with the legal clarity provided by the Supreme Court in August.
The UK’s top Court sided with lenders on two out of three cases relating to the car-misselling saga, but upheld the case of one claimant under the grounds their 55 per cent commission was “unfair.”
However, the FCA has said the threshold for its redress – where 14.2m agreements are estimated to be eligible – will be 35 per cent.
Analysts have raised concerns over the “forensic” level of governance expected to be on lenders throughout the scheme as they attempt to prove their deals were not “unfair”.
Lloyds, which owns the UK’s largest motor finance lender Black Horse, said on Monday it would raise it would set aside an additional £800m in provisions.
The group added it would “make representations to the FCA accordingly”.
Despite recording the fresh hit Lloyds shares rose 1.04 per cent to 83.76p on Monday.
FTSE 250 lender Close Brothers, which has set aside £165m, is expected to follow suit with an increase to provisions after stating last week the proposed scheme would likely lead to a “material increase”.
The FCA expects the scheme to cost £11bn, which fell at the lower end of previous estimations of £9bn to £18bn.
Lloyds boss: No evidence of harm in motor finance
Executives at BMW, which is on the hook for over £200m, have lobbied for a meeting with Chancellor Rachel Reeves over fears regarding the regulator’s redress scheme, The Times reported.
The Chancellor attempted to take the wheel in the motor finance battle earlier this year, but faced a roadblock from the Supreme Court.
Reeves was denied intervention in the case by the top Court and ahead of the ruling, speculation spread the Chancellor was plotting to overrule an adverse judgment.
The City had feared an eye-watering bill of up to £44bn if the Supreme Court upheld the entirety of the Court of Appeal’s October 2024 ruling. This spiked fears of a total collapse in the car financing market making consumers unable to obtain critical necessary loans.
The Justices were tasked with reviewing the judgment that found it unlawful for banks to pay commissions to car dealers without obtaining the customer’s informed consent.
Lloyds’ boss Charlie Nunn, slammed the October ruling during a session with the Treasury Committee in May stating it was “at odds with 30 years of legislation”
In a separate session with the Committee last month, Nikhil Rathi, chief executive of the FCA, said there had been a “range of cooperation” across lenders and claim management firms.
Rathi refused to name firms when pressed by MPs but said: “I think you can see firms in the public domain that have raised questions about any redress scheme we put in place”