Lex Autolease owner Lloyds sets aside £1.25bn for car loan payouts

The owner of Lex Autolease and Black Horse Motor Finance, Lloyds Banking Group, has put aside an extra £700 million for potential payouts on car loan commissions. 

It means the banking giant’s total compensation pot now stands at £1.25 billion as it awaits the outcome of the car loan commission saga. 

The vehicle finance industry is waiting for a definitive ruling on whether industry-wide practices of paying commission to dealers for introducing motor finance to customers were unlawful.

Specialist lenders Close Brothers and FirstRand hope to overturn that earlier ruling by the Court of Appeal at an expedited Supreme Court hearing in April.

Lloyds chief executive Charlie Nunn said: “Significant uncertainty remains around the final financial impact.”

Analysts at HSBC estimate that the collective bill for lenders could reach more than £44bn if the ruling is not overturned. 

The Financial Conduct Authority and the Government are watching closely as there is some concern that a healthy motor finance market is a necessary part of the UK economy.

An earlier attempt to intervene the landmark case by the Chancellor, Rachel Reeves, was rejected by the Supreme Court.

Reeves had urged the court to prevent what she described as “windfall” payouts to borrowers who were unknowingly charged additional fees due to secret commission arrangements between lenders and car dealers. However, judges rejected her application this week.   

Reeves’ intervention came after pressure from motor finance providers, who argued that massive compensation payouts could destabilise the sector, leading to reduced loan availability or higher interest rates. 

The Chancellor, however, denied accusations of yielding to financial industry lobbying or acting against consumer interests.

“There is nothing pro-consumer about making it harder for people to buy an affordable car for their family. That would be bad for working families,” Reeves said last month at the World Economic Forum in Davos, Switzerland.

Other banks have also made provisions for motor finance compensation. Barclays has set aside £90m, while Spanish bank Santander has made a £295m provision.

Managing director of Aurora Capital, George Holmes, said: “The scale of the car finance mis-selling issue is becoming increasingly clear, highlighted by Lloyds increasing their provisions for potential compensation claims to a massive £1.2bn. 

“While ensuring fair outcomes for affected consumers is essential, the knock-on effects for small businesses that rely on vehicle finance should not be overlooked.

“Some lenders may respond by tightening underwriting criteria or pulling back from motor finance altogether, which could make it more difficult for SMEs to secure the funding they need to operate or grow. 

“This disruption could lead to delays in securing vehicle finance, increased costs, and fewer options—creating significant challenges for small businesses that depend on transport for their day-to-day operations.

“For brokers, this situation underscores the need for clear, transparent lending processes that ensure fair treatment while keeping essential finance accessible. 

“Lenders must act swiftly to adapt, balancing compliance with the need to maintain a competitive market. If handled properly, this could be an opportunity to restore trust in the sector.”

The car finance issue has drawn comparisons to the infamous payment protection insurance (PPI) mis-selling scandal, with some analysts warning that the final cost to lenders could reach £44bn.