What the bank has decided
Lloyds Banking Group has chosen not to mount a legal challenge against the Financial Conduct Authority’s £9.1 billion compensation scheme for motorists who were allegedly mis-sold car finance, according to a report by the Financial Times.
The decision, disclosed on Friday, represents a significant moment for the regulator’s flagship redress programme, given that Lloyds is among the lenders most heavily exposed to the scheme. In a statement issued by the bank, a spokesperson said: “We have carefully considered the FCA motor finance redress scheme. While we remain disappointed in and disagree with its conclusions, we believe that moving forward with the scheme is now the right step for our customers and shareholders.”
According to the Financial Times, the bank had at one stage actively considered taking the regulator to court, believing the FCA had failed to properly reflect relevant court judgments in the design of the scheme.
Why the regulator intervened in the first place
The FCA last month ordered the motor finance industry to pay compensation to consumers, after finding that lenders had failed to adequately disclose the commissions they paid to car dealerships and the contractual ties between the two, over a 17-year period running up to 2024.
The final headline bill of £9.1 billion was trimmed from an initial estimate of £11 billion, after the FCA revised down its assumptions for administrative costs, narrowed the eligibility criteria and lowered its projections for how many motorists would come forward to claim.
An industry weighing its next move
Lloyds’ decision comes at a delicate moment for the wider sector. Banks and the finance arms of vehicle manufacturers have collectively set aside billions of pounds in anticipation of payouts, and are now working through whether those provisions will need to be adjusted, or whether to mount their own legal challenges to the scheme.
With one of the largest players now opting to cooperate rather than litigate, the industry’s calculus over whether to take on the regulator in court is likely to shift. The dollar-pound conversion used in the Financial Times report placed the $12.25 billion equivalent at an exchange rate of roughly $1 to £0.7427.
