The UK Financial Conduct Authority (FCA) has launched an investigation into car finance practices, focusing on potential overcharging.
- Lloyds has reserved £450 million to address possible compensation claims linked to the FCA’s probe.
- The investigation highlights discretionary commission practices, which were banned in 2021, potentially inflating costs for consumers.
- Lloyds, owning a significant motor finance arm, Black Horse, faces heightened exposure to these claims.
- Analysts predict the overall compensation for the sector could run into billions, adding to the uncertainty.
The Financial Conduct Authority has initiated a detailed investigation into car finance practices, specifically examining whether consumers have been overcharged due to certain commission arrangements. These arrangements involved brokers who earned commissions based on interest rates set for customers, potentially leading to higher charges for borrowers.
In response to the ongoing scrutiny, Lloyds has proactively set aside £450 million as a precaution to cover potential compensation claims resulting from the FCA’s investigation. This move reflects the bank’s readiness to address any identified issues and ensure compliance with regulatory expectations.
Central to the FCA’s inquiry are discretionary commission practices that allowed car dealers to alter loan interest rates to boost commissions, ultimately impacting consumer costs. Such practices were outlawed in 2021, with the FCA estimating annual consumer savings of £165 million as a result.
Given its substantial ownership of Black Horse, one of the leading motor finance providers in the UK, Lloyds is considered particularly vulnerable to any potential compensation demands. The bank’s preparation signals its acknowledgement of the seriousness of the risks involved.
Financial analysts suggest that the cumulative compensation costs for the industry could potentially escalate into billions, indicating significant financial implications for the sector. Despite setting aside a significant sum, Lloyds, according to experts, may still face uncertainty regarding the final impact of the investigation.
Lloyds’ proactive financial provision highlights the serious implications of the FCA’s investigation into car finance practices.
