Lloyds Banking Group plc Sponsored ADR (LYG.US) set aside an additional 800 million to cover compensation for improper sales of car loans.

The UK's Lloyds Banking Group plc Sponsored ADR (LYG.US) announced plans to set aside an additional 800 million (approximately $1.07 billion) to compensate customers who suffered losses due to improper sales of car loans. The Financial Conduct Authority in the UK had initiated a compensation scheme. The British bank had already set aside a total of 1.15 billion and in their filing on Monday stated that the total amount of 1.95 billion, including compensation and operating costs, was the "best estimate" of the potential impact of the car finance issue on the group. Lloyds Banking Group plc Sponsored ADR stated in the filing: "This reflects the possibility of an increase in the number of historical cases, including cases dating back to 2007, and that compensation amounts could exceed the previously provisioned amounts based on scenario assumptions." The progress of the compensation scheme follows a Supreme Court ruling in August granting leniency to loan providers, stating that banks only need to compensate for cases with the most serious breaches. Prior to this, the Financial Conduct Authority (FCA) in the UK had spent several weeks negotiating a compensation scheme for improper sales of car loans with loan providers, law firms, and other industry participants. Lloyds Banking Group plc Sponsored ADR stated: "Based on the current form of the FCA proposal, the potential impact is at the pessimistic extreme of the previous expected outcomes. The proposal is still in the negotiation stage and there is still significant uncertainty." Previously, the Johannesburg-based Lloyds Banking Group plc Sponsored ADR, through its UK subsidiary MotoNovo, held about 10% of the UK car finance market. The company stated that the FCA's consumer compensation proposal exceeded their previously expected reasonable outcomes. Close Brothers Group also stated that they might "substantially increase" the related provision funds for customer compensation. Lloyds Banking Group plc Sponsored ADR reiterated its commitment on Monday to ensuring that affected customers receive fair compensation, but added that they believed "the compensation calculation method proposed in the consultation paper does not reflect the actual losses of customers."