Editor’s note: This article relates to the FCA’s motor finance commission investigation announced in 2024. Readers should check the latest guidance from the Financial Conduct Authority for current developments.
Lloyds Banking Group set aside £450 million to cover potential costs arising from the Financial Conduct Authority’s (FCA) investigation into historic motor finance commission arrangements.
Although the bank reported a pre-tax profit of £7.5 billion for 2023, a 57% increase on the previous year, it acknowledged uncertainty surrounding the FCA’s investigation and the possibility of future compensation payments if customers were found to have suffered financial losses.
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Why is the FCA investigating motor finance?
The FCA launched an investigation into historical discretionary commission arrangements used in some motor finance agreements.
The review focuses on whether customers were charged higher interest rates because dealers received commission linked to the interest charged on finance agreements.
If the FCA concludes that consumers lost out financially, lenders may be required to compensate eligible customers.
Lloyds Banking Group owns Black Horse, one of the UK’s largest motor finance providers, making it one of the lenders most exposed to potential claims.
Why has Lloyds set aside £450 million?
The £450 million provision is intended to help cover any future compensation or regulatory costs that may arise if the FCA determines customers were treated unfairly.
At the time the provision was announced, Lloyds stressed that the outcome of the investigation remained uncertain and that no conclusions had yet been reached.
The bank also stated that it welcomed the FCA’s review, believing it would provide clarity for both consumers and the wider motor finance industry.
Could this become another PPI scandal?
Some financial commentators have compared the investigation to the Payment Protection Insurance (PPI) scandal, which resulted in UK banks paying more than £40 billion in compensation over several years.
However, Lloyds executives cautioned that the motor finance investigation should not automatically be viewed as another PPI-style compensation event, as the scale of any customer losses had yet to be determined.
Who could be eligible for compensation?
The FCA’s investigation relates to many motor finance agreements taken out before 28 January 2021, when discretionary commission models were banned.
You may potentially have grounds to complain if:
- You bought a vehicle using motor finance before 28 January 2021.
- Your finance agreement involved a discretionary commission arrangement.
- You believe you paid a higher interest rate than necessary.
Not every agreement will qualify, and eligibility will ultimately depend on the FCA’s findings and any future compensation scheme.
What should you do if you think you’ve been affected?
If you believe you may have been charged too much for your car finance, it’s worth taking the following steps:
- Review your finance agreement.
- Gather any paperwork relating to your loan.
- Contact your finance provider and ask whether your agreement involved discretionary commission.
- Keep copies of any correspondence.
- Monitor announcements from the FCA regarding compensation arrangements.
If you’re unhappy with your lender’s response, you may also be able to escalate your complaint to the Financial Ombudsman Service.
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Will every customer receive compensation?
Not necessarily.
The FCA’s investigation was launched to determine:
- Whether widespread misconduct occurred.
- Which customers, if any, suffered financial losses.
- Whether a formal industry-wide compensation scheme would be appropriate.
Until the investigation concludes, no automatic compensation is guaranteed.
Final thoughts
The FCA’s investigation into historic motor finance commission arrangements has the potential to affect thousands of motorists across the UK.
While Lloyds Banking Group has set aside significant funds in preparation for possible claims, the final outcome depends on the FCA’s findings and any future decisions regarding customer compensation.
If you financed a vehicle before January 2021, it’s worth reviewing your agreement and staying informed as the investigation progresses.
If you’re interested in vehicle ownership and everything that comes with it like insurances, we’ve looked into What Is a Deductible in Car Insurance? so you can understand how insurance costs can affect overall vehicle ownership.
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