Lloyds Banking Group has announced an additional reserve of £800 million for car finance compensation claims, bringing the total to nearly £2 billion. This increase comes as the bank anticipates a higher number of eligible claims related to financing agreements since 2007.
Lloyds Addresses Car Finance Scandal
Millions of drivers may be eligible for compensation due to hidden commission payments. The Financial Conduct Authority (FCA) recently detailed its proposed compensation scheme for consumers affected by these unfair practices.
Key Facts About the Compensation Scheme
- Timeline: Affected agreements span from 2007 to 2024.
- Eligible Claims: The FCA estimates around 14 million unfair deals.
- Average Payout: Each eligible claim could average £700.
- Total Compensation: Potential total compensation across lenders could reach £8.2 billion.
Issues and Concerns
The scandal revolves around undisclosed commission arrangements between lenders and dealers, unfair contracts, and misleading information provided to buyers. Lloyds has clarified that under the FCA’s current proposals, the financial impact for the bank is considered to be at the higher end of initial estimates.
The bank’s best estimate of the total redress cost stands at £1.95 billion. Despite the fact that the proposed scheme will be free for consumers, the interest on compensation will be significantly lower than what was offered during the previous Payment Protection Insurance (PPI) scandal, which cost Lloyds £22 billion.
Regulatory Insights
The FCA has estimated that 44% of all motor finance agreements made since 2007 will qualify for compensation. However, a recent Supreme Court decision has limited the number of potential claims. As a result, the FCA encourages anyone wishing to lodge a complaint to contact their lender or broker directly.
Industry Reactions
- The Finance and Leasing Association has expressed concerns that the FCA’s compensation figures may be excessive.
- Lloyds believes these calculations may not accurately reflect customer losses.
- Other lenders, like Close Brothers, are revising their financial provisions in light of these developments, signaling uncertainty in final compensation requirements.
Both consumer advocates and financial experts have urged lenders to comply with the FCA’s compensation guidelines. This is to ensure that drivers do not face additional delays in receiving due compensation.
Russ Mould, investment director at AJ Bell, noted that Lloyds appears discontented with the proposed compensation methodology, suggesting that the outcome is not yet fully resolved.
