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

Lloyds
Lloyds

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

Chief executive Charlie Nunn rejected the analogy, which has been made by figures including the consumer champion Martin Lewis, as he made the provision alongside Lloyds’ annual results.

Mr Nunn said: “We think this is a very different situation.” Lloyds had to pay almost £20bn over the PPI scandal, which crippled the bank for many years.”

The bank is one of Britain’s biggest car finance providers through its Black Horse unit.

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Mr Nunn stressed that motor finance was a “really important” financial service and the scale of motor finance loans made to customers was lower than those in the PPI redress scheme.

He also said customers also 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.

“There are a complex set of issues here and providing clarity to customers and the industry we think is really important.”

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 its findings in September.

Lloyds also revealed it was facing an FCA investigation into possible money laundering at the bank. In a short statement, the bank said the probe focused on compliance with “domestic UK money laundering regulations”.

Lloyds added: “The group has been fully cooperating with the investigation. It is not currently possible to estimate the potential financial impact, if any, to the group.

A spokesman declined to comment further.

The FCA effectively banned the sale of variable commissions, which raised too many conflicts of interests to set high interest rates. Lloyds is the first bank to set aside cash for car finance compensation.

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 certainty. Barclays also decided not to take a provision earlier this week due to the “low levels” of complaints it received and uncertainty. Natwest has no exposure.

Despite the remediation costs, the bank rewarded shareholders with a new £2bn buyback programme.

A large write-back of bad debt from the repayment of overdue loans to the Barclay family helped the bank push forward with the buyback.

Lloyds seized control of The Telegraph last year by appointing receivers until the debt was repaid in full in December.

Mr Nunn said the write back was worth roughly £700m and was a “good outcome” for shareholders.

“It’s a recovery of course of losses that we incurred over the previous years. All of our borrowers always have a legal right to pay down their loans and that’s what we saw happened,” he added.

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.

Lloyds is Britain’s biggest bank with a network of 11,000 branches.