Lloyds bank announced on Thursday morning that it had set aside an additional £700m in provisions for potential motor finance payouts, on top of the £450m recorded last year.
It has become the latest major lender to increase provisions in what’s becoming an increasingly expensive scandal for the UK’s financial sector.
Lloyds has announced the biggest hit. It’s set aside £1.2bn in provisions. Meanwhile, Santander has set aside £295m and Close Brothers reserving £165m.
The added provision came as Lloyds reported a £6bn pre-tax profit, missing analyst estimates of £6.5bn.
Richard Hunter, head of markets at interactive investor, said: “The remediation for the potential impact of the motor finance commission arrangements continues to overhang the stock and Lloyds took a further provision for the outcome of £700m.
“This is in addition to the £450m previously set aside, and the number had a material effect on fourth quarter profit.”
The total firms have set aside for potential payoffs now tops £1.7bn.
Consumer claims could be over £30bn
The scandal pertains to the City regulator, the Financial Conduct Authority (FCA), which has been investigating the use of discretionary commission arrangements (DCAs).
DCAs allowed brokers to effectively set their own interest rates, and the FCA said this opened opportunities to overcharge customers through opaque deals.
In October 2024, the court ruled that it was unlawful for car dealers to receive a commission from banks providing motor finance without obtaining the customer’s informed consent.
Lenders lodged an appeal against the court’s ruling, which the Supreme Court will hear in April.
Shares across banks tumbled on Monday after the UK Supreme Court rejected Chancellor Rachel Reeves’s attempts to intervene in the case
The Treasury said in January that it was concerned that any court judgments striking the banks with fines could trigger a withdrawal of companies from the sector and prevent customers from accessing credit to buy cars.
It also cited figures from ratings agency Moody’s that consumer claims could be north of £30bn.
Following news of the rejection, shares in Close Brothers sank as much as nine per cent, with Lloyds falling four per cent.
The FCA forbade further use of DCAs in 2021, claiming it would save customers £165m a year.