Lloyds adds 800 million pounds to motor finance provision, disputes FCA proposal

Lloyds Banking Group said Monday it will take an additional charge of 800 million British Pounds to cover potential compensation for a motor finance issue, bringing its total provision to 1.95 billion British Pounds.

The increase follows a consultation paper from the UK's Financial Conduct Authority on an industry-wide redress scheme for historical car loans, which the bank said represents an outcome at the 'adverse end' of its previous expectations.

The review centers on discretionary commission arrangements where car dealers could adjust interest rates on loans, potentially leading to higher costs for borrowers.

While setting aside more funds, Lloyds said it would challenge the regulator's proposed compensation method.

"The Group does not believe that the proposed redress methodology outlined in the consultation document reflects the actual loss to the customer," the company said in a statement.

Lloyds also argued the FCA's approach does not align with legal clarity from a recent Supreme Court judgment on the matter.

The bank said the total provision is its best estimate of the potential impact, though the ultimate outcome could change as the FCA proposals are still under consultation.

The move follows a warning from the bank last week that a material provision was likely, a shift from its position in August when it said any impact was unlikely to be material.