Lloyds Reserves £450m Amidst Ongoing Car Finance Probe.
Lloyds, a major UK banking institution, has earmarked £450 million to cover potential costs arising from an investigation by the Financial Conduct Authority (FCA) into car finance deals. Launched last month, the FCA’s probe centers on whether consumers were overcharged for cars, mainly focusing on commissions earned by brokers arranging car financing. As the owner of Black Horse, one of the UK’s leading motor finance providers, Lloyds is notably exposed to potential compensation claims.
The investigation delves into discretionary commission arrangements, where brokers had the authority to adjust interest rates on loans, earning higher commissions with increased interest rates. The FCA banned such arrangements in 2021, estimating the move would collectively save drivers £165 million annually. Last month, the FCA announced an investigation to determine if individuals who believe they were charged excessively for car loans are entitled to compensation. The Financial Ombudsman reported receiving 17,000 complaints related to the motor finance commission.
Acknowledging the uncertainty surrounding the situation, Lloyds has set aside £450 million to cover potential costs, though the actual amount may be adjusted based on the investigation’s outcome. This move has prompted comparisons to the payment protection insurance (PPI) mis-selling scandal, where banks faced significant payouts.
Lloyds’ Chief Financial Officer, William Chalmers, emphasized the uniqueness of the car finance probe compared to previous remediations. While the set-aside amount is lower than some expectations, questions persist regarding how Lloyds determined this figure. Analysts note the unknown outcome of the review and the bank’s acknowledgment of the uncertainty surrounding potential financial impacts.
In addition to the car finance probe, Lloyds disclosed being subject to another investigation by the FCA, examining the group’s compliance with money laundering rules and regulations. While asserting full compliance, the bank cannot predict the investigation’s financial impact at this stage.
Lloyds reported a substantial rise in annual profits, with pre-tax profits reaching £7.5 billion last year, a 57% increase from the previous year. In part, the bank attributes this positive financial performance to the recent interest rate increase. Despite this, Lloyds CEO Charlie Nunn acknowledged challenges faced by some customers, particularly those struggling with rising inflation and increased mortgage expenses.
While the outcomes of the FCA’s investigations remain uncertain, Lloyds is optimistic about the UK’s economy, anticipating low but positive growth in the current year. With ownership of brands like Halifax, Bank of Scotland, and Scottish Widows, the bank takes a prudent stance, acknowledging economic resilience while recognizing the financial challenges confronting specific customers.
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