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.’
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