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Lloyds Banking Group has decided against launching a legal challenge against the UK financial regulator’s £9.1bn compensation scheme for consumers allegedly mis-sold car finance over the past two decades.
The move by Lloyds, which is the UK’s largest provider of vehicle loans through its Black Horse brand, is a boost for the Financial Conduct Authority less than two weeks after it presented scaled-back proposals for its industry-wide redress programme.
The bank had weighed mounting a legal challenge to the scheme because it believed that the regulator had not adhered to court judgments, according to people familiar with the matter. In October, when the FCA published initial details of its programme, Lloyds was forced to increase its total provisions to £1.95bn.
While Lloyds still has significant concerns about the way the FCA has designed the scheme and how it came about, the bank’s senior executives decided this week that it was in the interests of both the industry and consumers to draw a line under the issue.
“While we remain disappointed in and disagree with [the FCA’s] conclusions, we believe that moving forward with the scheme is now the right step for our customers and shareholders in support of a clear, orderly and final process that provides certainty for consumers and industry,” a Lloyds spokesperson told the FT.
“Motor finance continues to play a critical role for customers across the UK and our focus is on ensuring these essential services are provided.”
The news comes only days after FirstRand, one of South Africa’s biggest lenders, announced it had decided to exit the UK’s motor finance market after 20 years and sell the challenger bank Aldermore because of the FCA’s redress programme.
On Tuesday FirstRand slammed the scheme as “deeply flawed”, “disproportionate” and “unfair” and said that owning a consumer finance business in the UK had been made overly risky because of the scheme.
Despite Lloyds’ decision, other individual lenders, trade associations, law firms and consumer representatives have been considering whether to launch their own legal challenges against the scheme.
Under the rules of FCA redress programmes, parties have 28 days to bring a legal challenge after they are announced. It will then be up to a judge to decide which, if any, challenges will be allowed and how soon they are heard.
The UK motor finance scandal, which bubbled away for years before reaching the Supreme Court last year, has at times hit the share prices of Britain’s biggest banks and forced them to book billions of pounds in provisions to cover compensation costs.
It stems from commissions paid by lenders to car dealerships as part of financing for vehicle purchases. The FCA and courts have said many of these commissions were poorly disclosed to consumers and often incentivised dealerships to charge higher interest rates.
At the end of March, the FCA gave full details of its redress programme and made concessions to banks, reducing the number of people eligible for compensation from 14.2mn to 12.1mn.
It said the estimated cost for British lenders had dropped to £9.1bn, compared with the £11bn it forecast in initial proposals last October.
An FCA spokesperson said on Friday: “Our scheme provides certainty and is the most cost-efficient and orderly way to deal with liabilities that exist. We welcome Lloyds, and other lenders, confirming they will deliver it.”
www.ft.com
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