By Elena Vardon
Lloyds Banking Group, Close Brothers and Bank of Ireland cautioned that they would probably need to set aside more money to compensate customers as part of a probe into commissions paid on car loans, sending the shares of the banks lower.
“Based on our initial analysis and the characteristics of the proposed scheme, an additional provision is likely to be required which may be material,” Lloyds said Thursday. In a separate statement, Close Brothers echoed that the regulator’s plan is “likely to result in a material increase in its existing provision” if implemented in its current form.
The U.K.’s Financial Conduct Authority earlier this week shared details on a program to compensate customers for the payment of commissions that it deems were unfairly charged on car loans by dealerships.
The redress program, which is set to be rolled out next year, will cost the industry an estimated 11 billion pounds ($14.74 billion), the FCA said. This is based on 8.2 billion pounds in customer payouts–including interest–and 2.8 billion pounds in administrative costs, assuming that 85% of eligible customers take part.
Lloyds, which is the largest car-finance provider in the U.K. through its Black Horse brand, has already booked 1.15 billion pounds in provisions for this matter in previous quarters. Based on its market share, analysts calculate that the bank could face an up to 2.0 billion-pound total charge and will need to earmark more cash to cover the difference.
Shares fell as much as 4%, erasing gains logged on Wednesday after the initial relief surrounding the FCA’s consultation and size of the potential bill, which was smaller than feared, lifted the stocks of exposed banks.
Close Brothers’ shares also tumbled on Thursday and were down 10% in midday exchanges. The merchant bank, which has the largest relative exposure given that car finance represents a significant part of its loan book, has so far set aside a 165 million-pound provision. The group is continuing to assess the implications of the redress plan and is confident in its capital strength, it said.
Bank of Ireland Group said it would likely require an increase to the provision of 143 million pounds it had booked as of June 30, and that the amount might be material, based on a preliminary analysis of the proposals. The Irish bank said the increase remained subject to a continuing analysis and review of the program, and that it had a strong capital position.
The FCA banned discretionary commissions on car financing in 2021 and has been investigating historical agreements dating back almost two decades since early last year. The regulator estimates that 44% of car loans taken out between April 2007 and November 2024, equivalent to 14.2 million agreements, were unfair and are liable for compensation.
“That [Lloyds’s] initial thoughts are that the number of cases in scope could be higher suggests that the 2 billion pounds may be more of a central scenario than worst case,” analysts at Keefe, Bruyette & Woods wrote in a note to clients.
Lloyds and Close Brothers both said that uncertainties remain on the outcome of the FCA’s consultation as well as the interpretation and implementation of the proposals.
Write to Elena Vardon at elena.vardon@wsj.com
(END) Dow Jones Newswires
October 09, 2025 09:58 ET (13:58 GMT)
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