- Lloyds makes around one in six car loans (worth £15bn) in the UK
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Lloyds has set aside £450m to cover potential compensation payments as an investigation into car finance progresses.
The bank, which offers around one in six car loans in the UK, announced the coup by revealing record annual profits of £7.5bn by 2023.
The Financial Conduct Authority (FCA) last month launched an investigation into whether customers were overcharged for car finance deals between 2007 and 2021. Analysts believe the investigation could end up costing the industry billions. in compensations.
Lloyds is a major player in the sector, with around £15bn of car loans on its books through its Black Horse division. The bank does not admit wrongdoing and he says it followed the rules in place at the time.
Research: Lloyds is a major player in the sector, with around £15bn of car loans on its books
The investigation focuses on the practice of car dealers receiving a higher commission if they brokered car loans at higher interest rates.
Such agreements, which have been banned since 2021, gave dealers an incentive to increase what customers had to pay, the FCA says. It has said that if it finds evidence of “widespread misconduct” and consumers have lost out, it will “ensure that people who are owed compensation receive an appropriate settlement.”
It has said that if it finds evidence of “widespread misconduct” and consumers have lost out, it will “ensure that people who are owed compensation receive an appropriate settlement.”
Analysts estimate this could lead to lenders paying bills of up to £16bn. Experts believe Lloyds could have to shell out up to £2bn. The bank said it welcomed the “clarity” provided by the FCA review, which comes after customer complaints were passed on to the Financial Ombudsman.
Chief executive Charlie Nunn said the £450m set aside was a “best estimate” covering legal and other costs involved in the review, as well as potential compensation.
He added: “We really welcome the FCA’s investigation into this because there are a complex set of issues here and we think providing clarity to customers and the industry is really important.”
Matt Britzman, an analyst at Hargreaves Lansdown, said the £450m figure was lower than some had feared, but there would be “question marks over how Lloyds has arrived at that figure”.
“What we do know is that Lloyds is one of the most exposed banks if the FCA considers there was misconduct and customer loss,” he added.
Lloyds is a major player in the sector, with around one in six car loans in the UK.
The investigation into car finance has already taken its toll on Close Brothers, one of Britain’s oldest commercial banks, which this month saw its shares fall more than 20 percent after it scrapped its dividend and warned of a ” significant uncertainty” about the investigation.
Other UK banks, which have also been reporting results, have not made provisions, citing a low level of complaints on the issue.
Lloyds shares rose despite taking the hit.
Its record profit of £7.5bn (up 57 per cent on the previous year) comes as banks capitalize on higher interest rates.
Lloyds also upgraded its assumptions about the UK economy yesterday, meaning it has had to set aside much less money to cover loans that are turning sour.
And it benefited from a £700m boost after the Barclay family repaid loans to The Daily Telegraph newspaper.
Nunn received £3.7 million per year, 2 percent less than in 2022.