Lloyds estimates £1.95bn hit from motor finance scandal

Lloyds Banking Group has set aside a further £800m to cover estimated costs associated with the car finance mis-selling scandal.

The bank said the sum took its total provision to £1.95bn.

It had been assessing the impact since the Financial Conduct Authority (FCA) revealed last week it was consulting on a compensation scheme, with up to 14.2 million car finance agreements potentially eligible for payouts.

The regulator had previously found that many lenders failed to disclose commission paid to brokers, which could have led to customers paying more than they should have between April 2007 and November 2024.

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Eligible customers could receive an average of £700 each under the proposals.

Lloyds said on Monday that it would be contributing to the consultation to argue a number of points.

It said: "The Group remains committed to ensuring customers receive appropriate redress where they suffered loss, however the Group does not believe that the proposed redress methodology outlined in the consultation document reflects the actual loss to the customer. 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."

Shares in Lloyds, which fell last week when the bank warned of a potential "material" increase in its provisions, gained more than 0.5% on Monday.

The estimated compensation figure came in below the sum some financial analysts had predicted.

The shares remain more 50% up in the year to date.

Another listed lender exposed to car loan mis-selling is also expected to raise the amount it has set aside.

Close Brothers, which has a £165m provision currently, saw its shares tumble 7% when it admitted an increase was likely once its analysis of the compensation consultation documents was completed.

Car finance makes up approximately a quarter of its total loan book.

(c) Sky News 2025: Lloyds estimates £1.95bn hit from motor finance scandal