Lloyds Banking Group has announced a significant increase in the amount it is setting aside to address the car finance mis-selling issue, now totaling £1.2bn, impacting its annual profits. This move includes an additional £700m allocated for potential compensation payments, on top of the initial £450m reserved earlier. Concerns have been raised about the lack of transparency regarding commission payments to car dealers by Lloyds and other car loan finance providers, potentially affecting millions of motorists who could be eligible for compensation.
Group chief executive, Charlie Nunn, emphasized to the BBC that the car finance problems are distinct from the PPI mis-selling scandal, which incurred substantial costs for the bank. Nunn stated that the provision for potential car finance compensation represents the bank’s current “best guess,” maintaining that overall performance remains strong. Despite this, Lloyds reported a pre-tax profit of £5.97bn, down from the previous year’s £7.5bn.
The Supreme Court is expected to make a ruling in April regarding the disclosure of commission payments to individuals acquiring car loans, a decision that could impact the amount customers may have been overcharged. As approximately two million cars, both new and used, are financed annually through agreements involving initial deposits and monthly fees with interest, banks and lenders might be liable for compensating individuals affected by certain arrangements, especially those made before regulatory changes in 2021. The PPI scandal from a decade ago also serves as a reminder of the potential financial ramifications, with Lloyds alone paying out £21.9bn for mis-selling practices related to insurance policies designed to cover loan repayments in case of unforeseen circumstances
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