Lloyds Bank has allocated £450 million to cover potential costs arising from an investigation into car finance deals conducted by the UK’s financial regulator, the Financial Conduct Authority (FCA). This development comes as part of the bank’s announcement of a substantial rise in annual profits, with pre-tax earnings soaring to £7.5 billion last year, exceeding expectations and marking a 57% increase from the previous year.

The FCA initiated a probe last month to examine whether individuals had been overcharged for car loans, focusing on the commissions earned by brokers who arranged car financing. Lloyds, being one of the major banks, is perceived as particularly exposed to potential claims due to its ownership of Black Horse, one of the UK’s largest motor finance providers.

The investigation revolves around discretionary commission arrangements where lenders allowed car dealers to adjust interest rates on loans, leading to higher commissions for brokers. The FCA banned these arrangements in 2021, estimating that the move would collectively save drivers £165 million annually. The regulator’s recent announcement of the investigation has prompted around 10,000 people to file complaints, with potentially more waiting in the wings.

Lloyds’ decision to set aside £450 million reflects the bank’s acknowledgment of potential compensation claims. Chief Financial Officer has stated that this situation differs from prior remediations, downplaying comparisons to the payment protection insurance (PPI) mis-selling scandal that cost banks tens of billions of pounds.

The exact extent of any misconduct or customer loss remains unclear, prompting the FCA’s involvement to provide clarity for both customers and the industry. Lloyds also disclosed another ongoing investigation by the FCA, examining the group’s compliance with money-laundering rules and regulations. The bank asserts full compliance but is uncertain about the potential impact on its finances.

Who Can Claim for Car Finance Mis-Selling?

Concerns surrounding car finance mis-selling have prompted the Financial Conduct Authority (FCA) to launch a thorough review of complaint handling procedures, triggered by worries that motor finance firms might be unfairly rejecting claims from borrowers who believed their contracts incurred additional expenses due to hefty dealer commissions. 

Despite the ban on such practices in 2021, the Financial Ombudsman Service (FOS) received over 10,000 complaints alleging overcharging, leading the FCA to investigate further. This development has the potential to result in a compensation payout similar to the Payment Protection Insurance (PPI) scandal. 

Individuals affected by this issue are encouraged to promptly lodge complaints to potentially claim compensation, especially those who purchased cars or vans on motor finance before 2021. The FCA’s investigation will specifically focus on complaints related to cars bought with motor finance before 28th January 2021, using personal contract purchase (PCP) or hire purchase agreements, where the lender and car dealer had a ‘discretionary commission arrangement’ linking interest rates to broker commissions. 

However, the investigation will not cover complaints involving cars purchased with finance on or after 28th January 2021, car leasing arrangements (Personal Contract Hire), or mis-selling claims unrelated to commission but concerning issues like affordability checks.

If you are unsure whether you will be eligible to make a claim for car finance mis-selling, please do not hesitate to contact us.