9th Oct 2025 08:31
(Alliance News) - Lloyds Banking Group PLC on Thursday warned an additional provision is likely to be required, which may be "material", in relation to the redress scheme for motor finance mis-selling.
Shares in the Edinburgh-based lender fell 3.6% to 83.24 pence each in London on Thursday morning.
They had risen 3.7% on Wednesday after Lloyds said it was reviewing the potential impact of a proposed industry-wide compensation scheme for motor finance customers following an announcement by the UK Financial Conduct Authority.
In a statement on Thursday, Lloyds said it continues to consider the impact and implications of the recently published FCA consultation paper. While uncertainties remain, the bank said that, based on its initial analysis and the characteristics of the proposed scheme, an additional provision is likely to be required which may be "material".
This remains subject to ongoing analysis and review of the proposals, Lloyds added.
On Tuesday, the FCA, the UK's finance regulator, said car finance mis-selling will cost providers around GBP8.2 billion, with an additional GBP2.8 billion of administrative costs, taking the total to GBP11 billion.
The UK's financial regulator had previously estimated that the total cost of compensation could range from GBP9 billion to GBP18 billion.
The FCA proposed a redress scheme after a court ruling in August which said that, while the car loans were not unlawful, claimants could still seek compensation on certain grounds.
The FCA said its investigation had found "widespread failures to adequately disclose the existence and nature of commission and contractual ties between lenders and brokers," which led some customers to overpay on car loans.
Under the proposed redress scheme, customers may be entitled to compensation if their car finance agreements involved discretionary commission arrangements, where dealers could increase interest rates to boost their commission, or where commission exceeded 35% of the total cost of credit or 10% of the loan value.
The FCA last month had said that most people were likely to receive less than GBP950 for each agreement, but it now expects a figure of around GBP700 per customer.
By Jeremy Cutler, Alliance News reporter
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