The FCA is scrutinising whether consumers were charged inflated prices for car loans, focusing on loan and commission arrangements made between 2007 and 2021.

This provision, however, is notably lower than some analyst estimates, which had suggested potential costs for Lloyds could reach upwards of £2 billion. Consumer champion Martin Lewis has likened the situation to “the new PPI”, drawing parallels to the payment protection insurance scandal that cost banks over £40bn.

Lloyds, with its Black Horse division specialising in motor finance and holding £15.3bn in loans, emphasises “significant uncertainty” regarding any potential misconduct or customer losses leading to penalties or payouts.

The investigation’s timeline remains unclear, causing additional uncertainty for Lloyds. Analysts at Jefferies estimate the industry may face a bill of up to £13bn, while RBC Capital forecasts total charges of £8bn, The Guardian reports.

Lloyds has the highest exposure to car loans among UK high street banks, up to £2.5bn. Other banks such as Barclays and Santander UK may also face substantial costs, with RBC estimating potential charges of £357m and £1.1bn, respectively.

Barclays, which ceased new car loans in 2019, expressed confidence and did not set aside funds for the investigation, citing low levels of complaints. Lloyds CEO, Charlie Nunn, acknowledged the uncertainty, stating that the actual amounts involved could be higher or lower than the provision.

Despite the impact on the bonus pool, which dropped to £384m in 2023, Lloyds reported annual pre-tax profits of £7.5bn, up 57% from the previous year. Net interest income rose by 3% to £13.3bn.

Mr Nunn’s pay package for 2023, including a £1.3m bonus, amounted to £3.7m, slightly lower than the £3.8m in total pay for 2022.

Lloyds announced a dividend of 1.84 pence per share and a £2bn share buyback, which helped boost investor confidence. Lloyds’ shares rose by 3% following the announcement.

Edward Firth, managing director of UK banks research at KBW, notes that the £450m charge may not be the end of the story. However, he suggests it is significantly below market fears, and the FCA’s approval of a £2bn buyback indicates a more optimistic outlook for potential charges later in the year.