By Elena Vardon

Lloyds Banking Group's shares were dragged by the lender's warning that it would probably need to set aside more money to compensate customers as part of a probe into commissions paid on car loans.

"Based on our initial analysis and the characteristics of the proposed scheme, an additional provision is likely to be required which may be material," the bank said Thursday, without providing figures.

The U.K.'s Financial Conduct Authority earlier this week shared details on a plan to compensate customers for the payment of commissions that it deems were unfairly charged on car loans by dealerships.

The redress program, which is set to be rolled out next year, will cost the industry an estimated 11 billion pounds ($14.74 billion), the FCA said. This is based on 8.2 billion pounds in customer payouts--including interest--and 2.8 billion pounds in administrative costs, assuming that 85% of eligible customers take part.

Lloyds, which is the largest car-finance provider in the U.K. through its Black Horse brand, has already booked 1.15 billion pounds in provisions for this matter in previous quarters. Based on Lloyds' market share, analysts calculate that the bank could face a roughly 2.0 billion-pound total charge and will need to earmark more cash to cover the difference.

Shares fell nearly 4% shortly after market open, erasing gains logged on Wednesday on the initial relief surrounding the FCA's consultation and size of the potential bill, which was smaller than feared.

The FCA banned discretionary commissions on car financing in 2021 and has been investigating historical agreements dating back almost two decades since early last year. The regulator estimates that 44% of car loans taken out between April 2007 and November 2024, equivalent to 14.2 million agreements, were unfair and are liable for compensation.

"That [Lloyds'] initial thoughts are that the number of cases in scope could be higher suggests that the 2 billion pounds may be more of a central scenario than worst case," analysts at Keefe, Bruyette & Woods wrote in a note to clients.

The bank is expected to provide an update as soon as possible and to book this charge in its third-quarter results which are scheduled for Oct. 23.

"Uncertainties remain outstanding on the interpretation and implementation of the proposals," Lloyds said, adding that the level of provisioning remains subject to continuing analysis and review of the FCA's plan.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

October 09, 2025 04:52 ET (08:52 GMT)

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