Black Horse owner Lloyds puts aside £1.25bn awaiting car loan commissions outcome

Lloyds Banking Group, which owns Black Horse Motor Finance and Lex Autolease, has put another £700 million into its pot for potential compensation while it awaits the outcome of the car loan commission saga at the Supreme Court.

It takes the total set aside by Lloyds to £1.25 billion now, as the motor retail industry waits 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.

The chancellor, Rachel Reeves, controversially applied to intervene in the supreme court hearing last month. That application urged judges to avoid handing “windfall” compensation to borrowers harmed by allegedly secret commission payouts.

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.

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.