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Banking giant Lloyds has set aside £450m to cover the potential cost of an investigation into car finance deals by the UK’s financial regulator.
A probe into whether people had been paying too much for cars was launched by the Financial Conduct Authority (FCA) last month.
Brokers who arranged car financing earned commission on the interest rates that they set for customers.
Lloyds revealed the provision as it announced a big rise in annual profits.
The bank said pre-tax profits jumped to £7.5bn last year, which was higher than expected and up 57% from the year before.
The FCA announced last month that it would investigate whether people who believe they were charged too much for car loans were owed compensation.
Under what were called discretionary commission arrangements, some lenders had allowed car dealers to adjust interest rates on loans, which would improve the commission they received. In short, the higher the interest rate, the higher the commission.
As a result, these deals created an incentive for brokers to increase how much people were charged for their car loan.
In 2021, the FCA banned these arrangements, saying it would collectively save drivers £165m a year.
Some analysts have claimed that the total compensation bill could run into the billions.
Lloyds Banking Group is seen as the most exposed of the major banks to any claims, as it owns one of UK’s largest motor finance providers, Black Horse.
Speaking to the BBC’s Today programme, Lloyds chief executive Charlie Nunn said: “The extent of any misconduct or loss on behalf of customers, if any, remains unclear so we welcome the FCA’s announcement a few weeks ago to look in to this to provide clarity for customer and the industry.”
