Lloyds Banking Group has reserved an extra £800m ($1.06bn) to address potential costs arising from the latest car finance mis-selling scandal .  

Recently, the bank announced the incurring of additional charges.  

This decision follows a consultation paper issued by the Financial Conduct Authority (FCA) regarding a proposed industry-wide compensation scheme for motor finance customers, after a Supreme Court ruling earlier this year. 

The group, which operates a car finance provider, Black Horse, has evaluated the consequences of the FCA’s proposed scheme.  

The controversy stems from the reported lack of transparency in commission payments to motor dealerships, which may have led to consumers being charged higher interest rates without adequate disclosure. 

Initially, Lloyds Banking Group had set aside £1.15bn to cover various uncertainties, including possible regulatory decisions and compensation outcomes. 

However, the latest proposals from the FCA suggest a more severe impact than Lloyds Banking Group had previously anticipated. 

The additional £800m charge reflects the increased likelihood of a higher number of historical cases, particularly those dating back to 2007, being eligible for redress.  

With the total provision now standing at £1.95bn, including both compensation and operational expenses, Lloyds Banking Group indicates that this figure is its current best estimate of the potential financial impact related to the car finance issue. 

The FCA’s current proposals are not final and may be subject to change following feedback from industry representatives and the outcomes of any additional legal challenges or customer complaints.  

The group has voiced concerns that the proposed compensation calculations may not accurately reflect customers’ actual losses and might not adequately compensate those who have suffered harm. 

In a statement, the bank said: “In addition, the approach to unfairness in the redress scheme does not align with the legal clarity provided by the recent Supreme Court judgment in Johnson [US], in which unfairness was assessed on a fact-specific basis and against a non-exhaustive list of multiple factors.”