Motor finance provision cuts Lloyds profits by a third

Lloyds Banking Group’s decision to add a further £800 million to its original £1.15 billion provision for motor finance mis-selling claims has hit the bank’s pre-tax profits for the three months to the end of September, which fell by 36% year-on-year to £1.17 billion.

In its Q3 2025 interim management statement Lloyds, which is the UK’s biggest auto finance lender through its Black Horse subsidiary, indicated it may challenge the Financial Conduct Authority (FCA) over its plans for an industry-wide redress scheme.

Citing the FCA’s consultation which was published earlier this month, Lloyds said the details of the products in scope, situations where the regulator considers inadequate disclosure would give rise to an unfair relationship, proposed redress methodology, engagement approach and time bar all mean that the potential impact “is at the adverse end of the Group’s range of expected outcomes.”

The bank said its decision to up its provision to £1.95 billion “reflects the increased likelihood of a higher number of historical cases, particularly DCA, being eligible for redress, including those dating back to 2007 and also the likelihood of a higher level of redress than previously anticipated, reflecting the FCA’s proposed redress calculation approach, which is less closely linked to actual customer loss than anticipated.”

It also stated that it will be making representations to the FCA, “given that the Group has concerns, including relating to the approach to unfairness and proposed redress methodology.”

In media interviews, Lloyds CFO William Chalmers said” We do intend to compensate customers appropriately where harm has been suffered. That’s an absolute commitment,” but argued that allowing claims to be brought from 2007 “is in extent of what can be appropriately described as unfair.”

Chalmers said: “Our initial view is that the proposals are disproportionate. The determination of unfairness is too broad and the redress calculation is not closely linked to harm, resulting in anomalous outcomes for customers.”