8th Oct 2025 08:45
(Alliance News) - Lloyds Banking Group PLC on Wednesday said it is reviewing the potential impact of a proposed industry-wide compensation scheme for UK motor finance customers following an announcement by the Financial Conduct Authority.
The London-based lender said it is "currently assessing the implications and impact of this consultation in the context of its current provision for this issue" and will update the market when appropriate.
Lloyds, which has already set aside GBP1.2 billion to cover possible costs linked to motor finance mis-selling, is among several banks likely to be affected by the FCA's proposed redress scheme.
On Tuesday, the regulator estimated that compensation for mis-sold car finance could cost UK banks around GBP8.2 billion, below its earlier forecast range of GBP9 billion to GBP18 billion.
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 regulator said around 14.2 million agreements, or 44% of those made since 2007, are likely to be considered unfair due to inadequate disclosure.
The FCA expects an 85% participation rate in the scheme, bringing total redress to GBP8.2 billion including interest. Implementation and operational costs could add another GBP2.8 billion, taking the total estimated cost to GBP11 billion.
Other lenders with exposure include Close Brothers Group PLC, S&U PLC and Vanquis Banking Group PLC.
Shares in Lloyds were 2.5% higher at 85.38 pence in London on Wednesday morning.
By Eva Castanedo, Alliance News reporter
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