Lloyds Banking Group announced on Monday morning that it would set aside an additional £800m for motor finance provisions, following a regulatory redress scheme that fell “at the adverse end of the range of previous expected outcomes.”
The FTSE 100 banking giant, which owns Black Horse – the UK’s largest motor finance lender, had previously allocated £1.2bn in provisions. This extra provision brings the total to just under £2bn, as reported by City AM.
Despite this, shares in the company rose by over one per cent as markets opened on Monday, reaching 83.85p.
Last Tuesday, the Financial Conduct Authority stated that it anticipates its redress programme will cost up to £11bn and cover 14.2m agreements dating back to 2007.
Following this news on Tuesday, Lloyds’ share price surged 3.5 per cent to 86.22p, with many viewing the scheme – falling at the low end of cost expectations – as a positive outcome.
However, analysts have expressed concerns about the “forensic” level of governance expected from lenders throughout the scheme as they strive to demonstrate their deals were not “unfair”.
Lloyds explained the increased provision: “Reflects the increased likelihood of a higher number of historical cases, particularly DCA, being eligible for redress, including those dating back to 2007 and also the likelihood of a higher level of redress than anticipated in the previous scenario based provision, reflecting the FCA’s proposed redress calculation approach, which is less closely linked to actual customer loss than previously anticipated.”
The lender stated the FCA’s interpretation of “unfairness” fails to correspond with the legal framework established by the Supreme Court in its August judgment.
The company indicated it intends to “make representations to the FCA accordingly”.
Lloyds Bank boss: No evidence of harm in car finance
The watchdog has positioned lenders at the helm of the programme, suggesting overall expenses could be proportionate to the methodology involving administrative duties. .
Christos Doumas, director at Forvis Mazars, remarked: “In short, this is more than a redress exercise. It is a test of data discipline, accountability and governance across the motor finance sector, and one which provides many lessons for firms to prevent similar issues in the future.”
Earlier this year, Lloyds Banking Group chief executive Charlie Nunn informed the Treasury Committee there was “no evidence of harm” from the firm’s operations in the car financing market.
The banking executive instead argued the Court of Appeal’s October ruling was “at odds with 30 years of legislation”.
In August, the Supreme Court delivered lenders a tepid victory by partially reversing the decision, yet maintained the case of one complainant under “fairness” keeping the door open for the City regulator’s compensation programme.
