Lloyds Banking Group has been forced to set aside an additional £800 million to cover compensation claims linked to historical motor finance commission arrangements, signalling deepening troubles for the UK's largest domestic bank.
The massive provision comes as the Financial Conduct Authority (FCA) continues its investigation into discretionary commission arrangements that were banned in 2021. This fresh allocation brings Lloyds' total provisions for the scandal to approximately £2 billion since the beginning of 2024.
Mounting Financial Pressure
The bank confirmed the additional provision would impact its third-quarter results, though it emphasised that underlying performance remains "robust." This marks the second major provision this year, following a £450 million charge in February and another £650 million in July.
Analysts are growing increasingly concerned about the potential scale of the compensation bill, with some suggesting the final cost could significantly exceed current estimates as more customers come forward with claims.
Industry-Wide Implications
Lloyds, which owns Black Horse motor finance, is considered particularly exposed to the scandal due to its significant market share in car financing. The FCA's ongoing investigation could potentially affect millions of consumers who purchased vehicles using finance agreements before the 2021 ban.
- Total provisions now approach £2 billion since January 2024
- FCA investigation focuses on discretionary commission arrangements
- Potential impact on millions of UK consumers
- Industry-wide compensation could reach billions
What This Means for Consumers
The scandal centres around arrangements where lenders allowed car dealers to adjust interest rates on finance agreements, effectively earning higher commissions for securing more expensive deals for customers. Many consumers were unaware of these hidden incentives.
"This substantial additional provision indicates the seriousness with which Lloyds is treating this issue," said a financial analyst familiar with the matter. "It suggests the bank anticipates significant customer compensation payouts in the coming months."
Customers who believe they may have been affected are encouraged to contact their lenders directly or seek independent financial advice. The FCA is expected to provide further guidance on the claims process once its investigation concludes.
