Lloyds Bank anticipates additional charges over car finance mis-selling
Lloyds Banking Group has conveyed the likelihood of incurring further charges due to the car finance mis-selling scandal.
This follows the UK Financial Conduct Authority’s (FCA) announcement that the total cost to banks could reach £8.2bn ($11bn) as a result of the scandal.
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The issue at hand stems from the way commissions were paid to motor dealerships, incentivising higher interest rates on millions of vehicle sales.
According to regulatory and legal findings, these payments were not sufficiently transparent to consumers entering into the finance agreements.
Lloyds, which operates the car finance arm Black Horse, previously allocated £1.2bn for compensation but now suggests that a more substantial provision may be necessary.
In a statement, the bank said: “Uncertainties remain outstanding on the interpretation and implementation of the proposals but based on our initial analysis and the characteristics of the proposed scheme, an additional provision is likely to be required which may be material.”
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By GlobalDataAnother UK-based car finance provider, Close Brothers, has also indicated that it expects to increase its current provision of £165m due to the proposed compensation scheme.
In a statement, Lloyds added: “This remains subject to ongoing review of the proposal and analysis of its potential impact on the group.”
This scheme, if sanctioned, would address about 14 million motor finance agreements dating from 2007 to 2024.
The suggested average compensation is around £700 per agreement, with the potential for disbursements to commence the following year.
The FCA’s proposed redress scheme aims to offer restitution to consumers who were reportedly not adequately informed about the financial details of their car purchase agreements.
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