Lloyds rules out redress scheme legal challenge

Lloyds Bank, the UK’s largest motor finance lender via its Black Horse subsidiary, has decided not to mount a legal challenge to the Financial Conduct Authority (FCA) redress scheme announced at the end of March, citing concerns that such a move could prove disruptive for customers.

In an article published in the Financial Times, a Lloyds spokesperson said: “While we remain disappointed in and disagree with [the FCA’s] conclusions, we believe that moving forward with the scheme is now the right step for our customers and shareholders in support of a clear, orderly and final process that provides certainty for consumers and industry.”

 “Motor finance continues to play a critical role for customers across the UK and our focus is on ensuring these essential services are provided,” the spokesperson added.

Previously Charlie Nunn, group CEO of Lloyds Banking Group, had warned about the potential impact of the proposed FCA redress scheme on the UK’s investability, telling a House of Lords financial services regulation committee hearing in 2025 that:

FCA estimates suggest the total bill for lenders is likely to be £9.1 billion, including both compensation payments and administrative costs.

Boosted provision

Lloyds 2025 full year results, published in January this year, showed the bank had boosted its provision for any claims under a redress scheme to £1.95 billion, saying this reflected  “the increased likelihood of a higher number of scheme cases (i.e. discretionary commission arrangements, commercial tie or high commission arrangements) being eligible for redress, including those dating back to 2007 and also the likelihood of a higher level of redress than anticipated in the previous scenario-based provision.”

In the event, once the scheme’s final details were published in March, Lloyds said its analysis did not indicate any change to the provision was required, although the bank also highlighted a number of uncertainties including response rates, operational costs and any litigation, stating: “The ultimate outcome may also differ dependent upon potential actions by various parties, including legal proceedings and complaints results at the end of April.”

Lloyds’ decision not to seek to challenge the FCA redress scheme comes after FirstRand announced it is scaling back its UK motor finance business, including looking to sell Aldemore Bank, citing “legal and regulatory look-back risk” and a higher than expected compensation bill as among its reasons.

Lenders, claims management companies, and others have until April 27 to decide whether or not to take legal action over the construction of the FCA scheme.