Lloyds Flags Larger Costs from UK Motor Finance Mis-Selling Probe

Lloyds Banking Group has warned it may need to set aside more funds to compensate customers affected by the UK motor finance mis-selling scandal, following proposals from the Financial Conduct Authority (FCA).

The bank, a major player in car finance, has already provisioned £1.15 billion ($1.54 billion) — the highest of any UK lender — but said the final cost could be materially higher. Analysts from Citi and Jefferies suggest provisions could rise to £1.5 billion.

Lloyds may set aside more funds over UK motor finance mis-selling

The FCA indicated this week that the motor finance sector may pay around £11 billion to compensate consumers, a figure lower than previously feared. Following the announcement, Lloyds shares rose alongside other lenders including Barclays and Close Brothers.

Lloyds said on Thursday:

“Uncertainties remain on the interpretation and implementation of the proposals. Based on our initial analysis, an additional provision is likely to be required, which may be material.”

The bank is continuing to review the regulator’s consultation paper to assess the full implications of the proposed redress scheme.