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The UK car finance mis-selling scandal will cost banks £8.2bn, the financial regulator has said, a lower-than-expected figure that is still on track to become one of the industry’s biggest compensation schemes.
The Financial Conduct Authority previously estimated that the total cost of compensation could range from £9bn to £18bn. It said last month that most people were likely to receive less than £950 for each agreement.
The scandal stems from commissions paid by lenders to motor dealerships as part of millions of vehicle sales for many years, which the regulator and courts have said incentivised higher interest rates and were insufficiently disclosed to consumers.
Lloyds Banking Group is the UK’s biggest provider of car finance through its Black Horse business and has taken a £1.2bn provision to cover the cost of the redress scheme.
But the lender with the highest exposure to the scandal is Close Brothers, the 146-year-old City of London bank, which has a fifth of its loan book in car finance.
This is a developing story
