By JOHN-PAUL FORD ROJAS, DEPUTY BUSINESS EDITOR
Lloyds yesterday launched a fightback against the City watchdog over a compensation plan to pay millions of motorists who were mis-sold car loans hundreds of pounds each.
The lender, which is on the hook for almost £2billion over the scandal, accused the Financial Conduct Authority (FCA) of botching the design of the scheme.
Sources close to the bank said the 14.2m loans that the FCA has said are entitled to pay-outs include ‘several million’ that should not qualify.
They are expected to average £700 each – leaving banks to foot an £11billion bill.
Lloyds also hinted that it could yet take legal action if the plans set out last week by the FCA for pay-outs are not watered down.
The scheme relates to motor finance agreements made between 2007 and 2024.
Payouts: Lloyds, which is on the hook for almost £2bn over the motor finance scandal, accused the FCA of botching the design of the compensation scheme
It centres on the practice of commissions being paid to car dealers for selling loans to customers on behalf of banks – without telling the customers about it.
In some cases, the dealers received bigger commissions if they sold higher interest loans.
The FCA has found that some lenders broke the law – and that 44 per cent of the car finance agreements made over the 17-year period were entitled to compensation.
Its findings were worse than expected for some in the industry.
Yesterday, Lloyds increased the sum it has set aside for the scandal by £800million to £1.95billion – and delivered a stinging broadside against the way the FCA has set up the scheme.
The bank said that while it was ‘committed to ensuring customers receive appropriate redress’, it did not believe the proposed scheme ‘reflects the actual loss to the customer’.
Lloyds added that the plan did not achieve the aim ‘of ensuring that consumers are compensated proportionately and reasonably where harm has been demonstrated’ and that the way it was designed ‘does not align’ with a recent Supreme Court ruling on the issue.
Executives believe the FCA included millions more claims than it should have due to the way it set a threshold for judging whether commissions on loans were too high, the Mail understands.
Lloyds said the ultimate outcome of the scheme ‘may evolve in response to representations made by various parties as well as further legal proceedings and complaints’.
That hinted at the possibility of a judicial review, this newspaper understands.
The Times, meanwhile, reported that car-maker BMW – which faces a potential hit of more than £200million from the scandal – is seeking talks with the Chancellor over the issue.
FirstRand, the South African owner of British motor finance business MotoNovo, reportedly warned last week that the watchdog’s plan went beyond ‘what can be considered proportionate or reasonable’.
Industry body the Finance and Leasing Association said the proposed scheme was ‘so broad that it would compensate customers who suffered no loss, an approach that is neither proportionate nor reasonable’.
But it is the intervention of Lloyds – which looks set to take the biggest financial hit from the scandal – which will pack the biggest punch.
An FCA spokesman said: ‘We believe our scheme is the best way to settle the issue for both consumers and firms, and alternatives would be more costly and take longer.
‘We recognise not everyone will get everything they would like.’
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
Share what you think
The comments below have not been moderated.
The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.
By posting your comment you agree to our house rules.
Do you want to automatically post your MailOnline comments to your Facebook Timeline?
Your comment will be posted to MailOnline as usual.
Do you want to automatically post your MailOnline comments to your Facebook Timeline?
Your comment will be posted to MailOnline as usual
We will automatically post your comment and a link to the news story to your Facebook timeline at the same time it is posted on MailOnline. To do this we will link your MailOnline account with your Facebook account. We’ll ask you to confirm this for your first post to Facebook.
You can choose on each post whether you would like it to be posted to Facebook. Your details from Facebook will be used to provide you with tailored content, marketing and ads in line with our Privacy Policy.
MORE HEADLINES
Published by Associated Newspapers Ltd