Lloyds Bank has become the first UK bank to set aside a whopping £450 million. This money is in case they need to pay back car finance customers who may have overpaid on their loans. This comes as part of a big investigation.
The Financial Conduct Authority (FCA), our financial watchdog, started looking into this last month. They’re checking out old commission arrangements in the car finance market. This came after lots of customers complained to car finance companies.
In January 2021, the FCA put a stop to something called discretionary commission arrangements. This was when lenders let brokers, like car dealers, bump up interest rates on car loans so they could get more commission. Research showed this led to higher finance costs and wasn’t fair on customers.
What’s going to happen next? If the FCA finds that customers have lost money because of bad behaviour, they’ll make sure these customers get their money back in a fair and efficient way. This might mean setting up a formal scheme to give people their money back. We should know more about what’s going to happen by the end of September.
MoneySavingExpert.com has made a tool to help people check if they were overcharged interest on a vehicle bought using finance before January 28, 2021. Martin Lewis, who started the website, said that in just one day, a whopping 262,500 complaint emails were sent using this tool.
So what does Lloyds say about all this?
Lloyds Bank, which is a big player in car finance through its Black Horse brand, has caught peoples attention. The bank says it’s too early to guess what might have to be paid back. Still, they welcome the investigation by the regulator for clear answers.
Matt Brizman, a monetary expert at Hargreaves Lansdown, has stated that the £450 million fee is “less than some had feared but there will be question marks around how Lloyds has come to that figure”.
Matt mentioned: “Lloyds has been honest in saying the outcome of the review is largely unknown.”
He also noted, “What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss.”
So what about other banks?
Santander has voiced that it’s received “a number of county court claims and complaints” on this topic after the FCA’s review, but more might come their way. But the bank can’t guess the possible financial impact right now as everything is uncertain.
Barclays mentioned the review in its full-year results this week but didn’t provide any more details or estimated costs.
Alex Neill, co-founder of consumer rights group Consumer Voice, expressed his view: “All car finance providers that used discretionary commission should be setting aside money to give customers back what they’re owed.”
He added: “It’s only right that all of the people who have been charged too much for their loan are compensated.”
