Lloyds Banking Group said on Monday morning it would put aside an additional £800m in motor finance provisions after the regulatory redress scheme fell “at the adverse end of the range of previous expected outcomes.”
The FTSE 100 banking titan – which owns the UK’s largest motor finance lender Black Horse – had sent aside £1.2bn in provisions. The extra provision takes the total to just short of £2bn.
The Financial Conduct Authority said last Tuesday it expects its redress programme to cost up to £11bn and cover 14.2m agreements dating back to 2007.
Lloyds share price jumped 3.5 per cent to 86.22p following the news on Tuesday, with many regarding the scheme – falling at the low end of cost expectations – a positive outcome.
But analysts have raised concerns over the “forensic” level of governance expected to be on lenders throughout the scheme as they attempt to prove their deals were not “unfair”.
Lloyds said the higher 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.”
Lloyds Bank boss: No evidence of harm in car finance
The regulator has put lenders in the driving seat of the scheme, meaning overall costs could be relative to approach with administrative tasks.
Christos Doumas, director at Forvis Mazars, said: “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, the boss of Lloyds Banking Group, Charlie Nunn, told the Treasury Committee there was “no evidence of harm” from the firm’s operations in the car financing market.
The banker instead said the Court of Appeal’s October ruling was “at odds with 30 years of legislation”.
In August, the Supreme Court handed lenders a lukewarm win by partially overturning the judgment, but upheld the case of one claimant under “fairness” leaving the door ajar for the City watchdog’s redress scheme.