Lloyds sets aside £450m for car finance mis-selling compensation

LLOYDS Banking Group has set aside £450m to cover potential compensation claims from the mis-selling of car finance, in a brewing scandal that has drawn comparisons with the PPI crisis.

Charlie Nunn, the chief executive, rejected the analogy as he made the provision alongside Lloyds’ annual results. Mr Nunn said: “We think this is a very different situation.” Lloyds also revealed that it was facing an FCA investigation into possible money laundering. The bank said the inquiry focused on compliance with “domestic UK money laundering regulations”.

Lloyds added: “The group has been fully co-operating with the investigation. It is not currently possible to estimate the potential financial impact, if any, to the group.” Lloyds had to pay almost £20bn over the PPI scandal. The bank is one of Britain’s biggest car finance providers via Black Horse.

Mr Nunn stressed that motor finance was a “really important” financial service and the scale of loans for customers was lower than those in the PPI redress scheme. He also said customers held loans for a shorter period. “The total amount per customer from a lending and exposure perspective is less so we don’t think this is like prior remediations,” he added.

The FCA is examining whether motor dealerships failed to inform customers about “variable” commissions paid by banks to dealers in relation to the interest rate on the loan. The watchdog will report findings in September. The FCA banned the sale of variable commissions, which raised too many conflicts of interests to set high interest rates.

Close Brothers, another motor finance lender, cut its dividend last week but said there was too much uncertainty.

Santander has said there is too much uncertainty. Barclays also decided not to take a provision earlier this week owing to the “low levels” of complaints it received and uncertainty. Natwest has no exposure. Despite the remediation costs, the bank rewarded shareholders with a £2bn buyback. A large write-back of bad debt from the repayment of overdue loans to the Barclay family helped the bank push ahead with the buyback. Lloyds seized control of The Telegraph last year by appointing receivers until the debt was repaid.

The final dividend was 1.84p per share, giving a total payout for the year of 2.76p per share, up 15pc on last year.

Profit after tax was £5.5bn and net income was 3pc higher at £17.9bn.