Lloyds Banking Group has increased provisions for the UK car finance mis-selling scandal by £800 million, taking its estimated total impact to £1.95 billion.

The lender said the Financial Conduct Authority’s consultation on a redress programme signalled more historical cases, dating back to 2007, were likely to be eligible and that the proposed calculation could lead to higher payouts than it had previously modelled. Shares in Lloyds edged up around one per cent in early trading on Monday.

The FCA last week set out plans for a sector-wide scheme expected to cost up to £11 billion and cover about 14.2 million agreements taken out between April 2007 and November 2024, with an average consumer payout of roughly £700. Lloyds, which provides motor finance through Black Horse, said the consultation increases the likelihood of a “higher level of redress” at the adverse end of its prior scenarios.

In a statement, the bank argued: “The Group remains committed to ensuring customers receive appropriate redress where they suffered loss, however the Group does not believe that the proposed redress methodology outlined in the consultation document reflects the actual loss to the customer.”

Lloyds also said the FCA’s approach is “less closely linked to actual customer loss than previously anticipated,” indicating compensation could exceed its earlier expectations. The bank added that the consultation’s framing of unfairness does not align with the Supreme Court’s Johnson judgment, which assessed unfairness case-by-case against a non-exhaustive list of factors. “Nor does it meet the objective of ensuring that consumers are compensated proportionately and reasonably where harm has been demonstrated,” Lloyds said.

The scandal centres on commissions paid to motor dealers, which regulators and courts found could incentivise higher interest rates and were not adequately disclosed to customers. The FCA’s proposed methodology was informed by the Supreme Court’s partial overturning of an earlier ruling that had threatened to push banks’ liabilities as high as £44 billion, though it upheld an avenue for consumer redress based on fairness. Lloyds said the new scheme increases the chance that “a higher number of historical cases, particularly DCA, [are] eligible for redress.”

Sector peers have signalled similar pressure. Close Brothers, which currently has a £165 million provision, warned of a likely increase following its review of the consultation documents. Market watchers noted the “forensic” governance demands lenders face to demonstrate deals were not unfair, with “data discipline, accountability and governance” under scrutiny.

Lloyds said it will contribute to the FCA consultation, arguing for changes to ensure proportionality and alignment with legal clarity.

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