Lloyds Banking Group PLC (LYG.US) announced plans to set aside an additional £800 million (approximately $1.07 billion) to compensate customers affected by auto loan mis-selling, following the launch of a compensation scheme by UK financial regulators. The British bank has already allocated £1.15 billion in provisions and stated in Monday's filing that the total of £1.95 billion, including compensation payments and operational costs, represents the group's "best estimate" of the potential impact from auto finance issues.

Lloyds Banking Group PLC noted in its filing: "This reflects the potential for higher numbers of historical cases, including those dating back to 2007, and compensation amounts that may exceed previous scenario-based provision levels."

The advancement of the compensation scheme stems from relief granted to lenders by the UK Supreme Court in August, ruling that banks only need to pay compensation for cases involving the most serious misconduct. Previously, the Financial Conduct Authority (FCA) spent weeks negotiating compensation arrangements for auto loan mis-selling with industry participants including lenders and law firms.

Lloyds Banking Group PLC stated: "Based on the FCA's current proposal format, the potential impact lies at the pessimistic extreme of previously expected outcome ranges. The proposal remains under consultation with significant uncertainties remaining."

The bank, through its UK subsidiary MotoNovo, holds approximately 10% of the UK auto finance market. The company indicated that the FCA's consumer compensation proposal exceeds what it previously considered a reasonable outcome range. Close Brothers Group also indicated it may "significantly increase" related provision funds for customer compensation.

Lloyds Banking Group PLC reiterated on Monday its commitment to ensuring affected customers receive fair compensation, but added that it believes "the compensation calculation methodology proposed in the consultation document fails to reflect customers' actual losses."