Lloyds Bank has decided not to pursue a legal challenge against the Financial Conduct Authority’s (FCA) £9.1 billion compensation scheme aimed at customers mis-sold car finance agreements. This move clears the way for eligible customers to receive payouts averaging £829, up from earlier estimates of £695.
The FCA announced last month that the motor finance industry must compensate consumers after discovering a 17-year practice of poor disclosure regarding commissions and contractual relationships between lenders and car dealerships. The scheme covers agreements made until 2024.
Although Lloyds expressed disappointment and disagreed with the FCA’s conclusions, the bank stated that supporting the scheme is in the best interest of both its customers and shareholders. Previously, Lloyds had considered legal action, questioning whether the regulator fully adhered to relevant court rulings.
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Separately, Lloyds highlighted ongoing economic challenges, including consequences of the Middle East conflict, which could result in a £151 million impact due to rising unemployment, inflation, and a cooling housing market. CFO William Chalmers emphasized that the current environment represents a slowdown in growth rather than a recession. He anticipates a gradual easing of conflict and expects the Bank of England to hold interest rates steady.
Chalmers also noted that despite rising rates, bank profitability has not kept pace, reflecting years of compressed margins caused by persistently low rates. The financial sector expects profitability to improve gradually as rates rise, though competitive pricing for consumers remains a priority.