Black Horse Motor Finance's owner, Lloyds Banking Group, has increased its provision for potential motor finance redress by £800 million to a total of £1.95 billion following the Financial Conduct Authority’s (FCA) consultation on an industry-wide compensation scheme.

The move follows the FCA’s consultation paper, published after the Supreme Court’s Johnson judgment on August 1, which outlined how the regulator intends to calculate compensation for customers affected by historic discretionary commission arrangements (DCAs).

Lloyds said it had previously set aside £1.15bn based on a range of potential regulatory and legal outcomes.

The FCA’s latest proposals, it said, suggest the potential financial impact is now at the adverse end of those scenarios.

According to the bank, the increased provision reflects a higher likelihood that more historical DCA cases, including some dating back to 2007, could qualify for compensation and that the FCA’s proposed methodology could result in greater redress levels than originally anticipated.

In a statement, Lloyds said: "The group remains committed to ensuring customers receive appropriate compensation where loss has occurred but argued that the FCA’s proposed approach does not accurately reflect actual customer loss or deliver proportionate outcomes."

The group also said the consultation’s proposed test for unfairness did not align with the legal position clarified by the Supreme Court in the Johnson case, where unfairness was assessed on a case-specific basis.

Lloyds said it intends to make representations to the FCA as part of the consultation process, which remains ongoing.

The bank added that the final cost of the redress scheme could still change depending on the regulator’s final decision, further legal proceedings or industry developments.

The FCA’s consultation on the motor finance redress scheme is expected to conclude in the middle of November, with the final framework due to take effect in 2026.

Rival bank Close Brothers has also increased its funding provision as it prepares for the FCA's redress scheme.

 

Motor finance redress and regulation to take centre stage at Automotive Management Live

 

Industry, consumer and regulatory impacts of the FCA’s proposed £8.2 billion redress scheme among topics to be debated at the NEC on November 12 at Automotive Management Live.

An expert panel will explore the latest developments in motor finance, including the Financial Conduct Authority’s (FCA) proposed redress scheme for mis-sold car loans, expected to compensate up to 14 million motorists.

The session will examine how the FCA’s redress consultation, the Supreme Court ruling on motor finance commissions and shifting consumer sentiment are shaping the future of the sector.