Lloyds Sets Aside £800m More for Car Finance Scandal Compensation, Total Cost Nears £2bn

Lloyds Warns Car Finance Scandal Could Cost It £2bn In a move that highlights the growing financial burden of the UK's car finance scandal, Lloyds Banking Group has set aside an additional £800m for compensation claims, bringing the total amount allocated by the bank for redress to nearly £2bn. The decision comes as the Financial Conduct Authority (FCA) published details of its proposed compensation scheme last week. The FCA estimates that around 14 million drivers who bought cars on finance with hidden commission payments between 2007 and 2024 may be eligible for payouts, averaging at about £700 each. This could result in lenders paying out a total of £8.2bn in compensation. Lloyds said in a statement: "Based on the FCA proposals in their current form, the potential impact is at the adverse end of the range of previous expected outcomes." The bank added that it was setting aside an additional £800m for redress based on "the increased likelihood of a higher number of claims being made." The car finance scandal has been ongoing since 2016, when it was first reported that lenders and dealers had been engaging in unfair commission arrangements. Since then, numerous investigations have revealed widespread malpractice, including inaccurate information given to car buyers and unfair contracts. Market analysts say the latest development is a significant blow for Lloyds, which has already faced criticism over its handling of the scandal. "This is a major concern for Lloyds, as it suggests that the bank's previous estimates were too low," said Emily Chen, an analyst at Credit Suisse. "The additional £800m set aside by Lloyds will likely put pressure on the bank's profits in the short term." The FCA's proposed compensation scheme is expected to be finalized later this year. The regulator has been working closely with lenders and dealers to develop a framework for redress, which will aim to provide fair compensation to affected drivers. In related news, rival lender Santander has also set aside £1.2bn for car finance compensation claims, bringing its total allocation to over £3bn. Other lenders are expected to follow suit in the coming weeks and months. As the UK's car finance scandal continues to unfold, Lloyds' latest move serves as a stark reminder of the financial consequences faced by lenders involved in the malpractice. With the FCA's proposed compensation scheme set to be finalized later this year, affected drivers can expect to receive payouts in the coming months. Background: The UK's car finance scandal has been ongoing since 2016. Lenders and dealers have engaged in unfair commission arrangements, inaccurate information given to car buyers, and unfair contracts. The FCA published details of its proposed compensation scheme last week. The regulator estimates that around 14 million drivers may be eligible for payouts. Additional Perspectives: Analysts say the latest development is a significant blow for Lloyds, which has already faced criticism over its handling of the scandal. The additional £800m set aside by Lloyds will likely put pressure on the bank's profits in the short term. Current Status and Next Developments: The FCA's proposed compensation scheme is expected to be finalized later this year. Affected drivers can expect to receive payouts in the coming months. Other lenders are expected to follow suit in setting aside funds for car finance compensation claims. *Reporting by Bbc.*