One of the leading British banks, Lloyds (LLOY), has confirmed that it’s put £450m aside as a provision while the country’s Financial Conduct Authority (FCA) investigates possible discrepancies in car finance deals. This move was announced as the banking giant revealed massive profits.
Lloyds Makes £450m Provision to Cover Possible Regulatory Issues
The FCA investigation was launched in January this year, following complaints from members of the public who believe they were charged too much commission to arrange finance for car purchases. According to the Financial Ombudsman, around 17,000 complaints have been received so far.
This raises the prospect of the bank being forced to pay compensation on the finance deals it helped organise through its Black Horse subsidiary and elsewhere. Their close links to the motor finance company mean that Lloyd’s is arguably the bank with the most exposure in this investigation.
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The key to this subject is an arrangement known as discretionary commission. Lenders gave car dealers the power to alter interest rates. By increasing the rate, they could earn more commission. This practice has now been banned, but the complaints relate to perceived unfair treatment before the ban.
Lloyds chief executive Charlie Nunn stated: “The extent of any misconduct or loss on behalf of customers, if any, remains very unclear”, while he welcomed the FCA’s plans to investigate the matter. Some analysts have compared it to the PPI scandal, which forced British banks to pay some £40bn in compensation.
However, better news for LLOY came in the shape of increased pre-tax profits, which rose to £7.5bn in 2023. That represents a 57% increase from the previous year and was higher than expected.
