Lloyds Bank is evaluating the implications of a recent court decision mandating increased transparency over commissions earned in car finance loans, according to finance news reports.
The ruling requires that dealers disclose to customers any commission they receive from lenders, such as Lloyds and Close Brothers, which could make it unlawful for dealers to earn these commissions without the customer’s informed consent.
Following the Court of Appeal’s decision, Lloyds shares declined sharply, reflecting market concerns about potential liabilities. The judgement has raised the bar for disclosure standards in the sector, prompting concerns that customers could demand compensation over undisclosed commission fees on past car finance agreements.
The issue has emerged as part of a broader regulatory probe into potential mis-selling in the industry, with companies such as Lloyds and Close Brothers having already allocated substantial provisions to cover possible compensation claims.
In response, Lloyds noted that its previous approach to commission disclosure had followed regulatory guidance but acknowledged that the ruling “goes beyond the scope” of the current Financial Conduct Authority (FCA) review. The bank also noted that the firms involved in the case plan to appeal to the UK Supreme Court.
The case centres on discretionary commission arrangements, a practice allowing brokers and car dealers to increase interest rates on finance agreements to earn higher commissions. This leads to customer overpayments. Regulators banned this practice in 2021 after identifying its financial impact on consumers.
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By GlobalData
Shares in Lloyds continued to fall on Monday, shedding an additional 1.2% in early trading.
