Lloyds Banking Group Faces Major Provisions Over Mis-selling Scandal

LONDON, Oct 13 – Lloyds Banking Group has stated on Monday that it will allocate an additional £800 million ($1.1 billion) in compensation for customers impacted by its car finance mis-selling scandal. This adjustment increases the total provisions to £1.95 billion.

To date, Lloyds had already set aside about £1.15 billion for what has been labeled one of the most costly scandals in the UK’s financial history.

The bank indicated that the Financial Conduct Authority (FCA) has introduced a proposed redress scheme, suggesting that more historical cases dating back to 2007 might be eligible for compensation. Additionally, Lloyds is looking to contest the FCA’s methodology regarding this compensation process.

According to Lloyds, the FCA’s method for calculating compensation appears “less correlated to actual customer losses” than they initially thought, potentially making the payout higher than previously anticipated.

In response to the news, Lloyds’ shares dropped 1.6% during early London trading, following a decline last week after giving indications of a possible “significant” rise in provisions.

Efforts to Adjust Rescue Scheme

RBC analyst Benjamin Thoms commented that there is some relief that the “material” replenishment for provisions was not as large as feared, noting that the regulator indicated 51% of the burden would fall upon banks.

Thoms mentioned that lenders’ goal is to persuade regulators to better align the redress schemes with actual customer losses and to address conflicts between the consultation document and the Supreme Court’s ruling.

Last week, the FCA proposed a scheme to assist consumers making claims related to motor finance, estimating a total cost of around £11 billion to the lenders.

Meanwhile, shares in Close Brothers, another financial institution, also mentioned that additional funds might be required for compensation; however, they saw an uptick on Monday.

($1 = 0.7492 pounds)