- Lender says FCA’s proposals do not accurately reflect borrower losses
Banking giant Lloyds has raised the amount it hs set aside to cover car finance payouts by almost 70 per cent to £2billion, as it fired a broadside at the financial watchdog.
Plans to force lenders to pay-out billions of pounds in compensation to car finance customers are disproportionate and do not accurately reflect borrower losses, Lloyds Banking Group has said.
It follows proposals published last week that could see lenders pay out £11 billion in total compensation and operational costs related to the car finance commissions scandal.
It came after a probe of around 14.2million motor finance deals agreed between April 2007 and November 2024 found were likely to be considered unfair.
Lloyds on Monday said it would raise its concerns with the Financial Conduct Authority as it ramped-up provisions for potential costs by £800million.
Last week, the FCA’s proposals prompted the bank, which owns the Black Horse motor finance lender, to warn investors that Lloyds’ £1.2billion provisions for payouts may be insufficient.
Now Lloyds said today that the FCA’s proposals ‘in their current form’ suggest the potential impact will be ‘at the adverse range of previous expected outcomes’, as the lender announced it would boost provisions to almost £2billion.
Lloyds has set aside £2bn for costs related to the car finance commissions scandal
The bank said: ‘This reflects the increased likelihood of a higher number of historical cases, particularly [discretionary commission agreements], being eligible for redress, including those dating back to 2007 and also the likelihood of a higher level of redress than anticipated in the previous scenario based provision, reflecting the FCA’s proposed redress calculation approach, which is less closely linked to actual customer loss than previously anticipated.’
Lloyds’ dispute over the FCA’s methodology in calculating potential redress is in part driven by the regulator’s definition of ‘unfairness’, which the lender doesn’t think matches a landmark Supreme Court judgement earlier this year.
It also doesn’t think the proposed redress methodology outlined by the FCA reflects actual losses to customers.
The lender also questions if the proposed compensation plan meets the FCA’s objective of ensuring consumers are compensated proportionately and reasonably where harm has been demonstrated.
Lloyds told shareholders it ‘does not believe’ the FCA’s proposed methodology for calculating redress owed by lenders ‘reflects the actual loss to the customer’.
It added: ‘Nor does it meet the objective of ensuring that consumers are compensated proportionately and reasonably where harm has been demonstrated.
‘In addition, the approach to unfairness in the redress scheme does not align with the legal clarity provided by the recent Supreme Court judgment in Johnson, in which unfairness was assessed on a fact specific basis and against a non-exhaustive list of multiple factors. The Group will make representations to the FCA accordingly.’
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