Lloyds Banking Group PLC has earmarked £450 million to address potential financial liabilities stemming from a Financial Conduct Authority (FCA) inquiry.
- The investigation by the FCA focuses on whether consumers were overcharged for car loans through discretionary commissions.
- Brokers arranging car financing were earning commissions based on customer interest rates, influencing the cost for consumers.
- Lloyds, owner of Black Horse, faces exposure due to its significant role in the UK motor finance sector.
- The banking giant reported a substantial increase in annual pre-tax profits alongside news of the investigation provision.
Lloyds Banking Group has set aside £450 million in anticipation of costs associated with an ongoing investigation by the Financial Conduct Authority (FCA) into car finance deals. The FCA’s probe evaluates practices where brokers earned commissions based on the interest rates set for customers, potentially leading to overcharging.
The focal point of the investigation is the use of discretionary commission arrangements by brokers, which allowed car dealers to alter loan interest rates, thus affecting the cost paid by consumers. This practice, deemed unfair to consumers, was prohibited by the FCA in 2021, a move expected to save drivers £165 million annually.
Lloyds is significantly involved in this issue due to its ownership of Black Horse, a leading motor finance provider in the UK. This exposure places Lloyds at the forefront of possible compensation claims that may arise from the findings of the ongoing FCA investigation.
Reportedly, Lloyds recorded a 57% surge in pre-tax profits, reaching £7.5 billion last year, highlighting a robust financial performance amidst the set-aside provision for potential liabilities. However, the ultimate cost of the compensation remains uncertain and could differ from the provisioned amount.
Expert opinions vary, with equity analyst Matt Britzman from Hargreaves Lansdown indicating uncertainty concerning the final outcome of the FCA review and its possible impact on Lloyds. Chief Executive Charlie Nunn has welcomed the FCA’s efforts for their potential to clarify issues related to misconduct and customer losses.
Lloyds prepares financially for the FCA probe, reflecting the ongoing scrutiny in the banking sector.
