Lloyds Bank has said it is “assessing the potential impact” of a court ruling last week which sided with consumers in a row over commissions earned by companies selling car finance loans.

Shares in the bank, a major motor finance seller, plunged last week after judges ruled that dealerships must tell customers about any commission earned when they take out the loans.

The ruling makes it unlawful for dealers to get a commission from lenders like Lloyds and fellow motor finance seller Close Brothers “without obtaining the customer’s fully informed consent to the payment”.

On Monday, Lloyds said the ruling “sets a higher bar” for disclosure of such commissions than previously thought.

The company statement added that it “notes the intention” of the three firms involved in the case to appeal over the judgment.

Some in the industry are concerned it could lead to more customers demanding compensation over car finance loans sold in previous years, amid an ongoing probe into the industry.

Bank stock
Lloyds Bank said the court ruling ‘sets a higher bar’ for disclosure of car finance commissions than previously thought (John Stillwell/PA)

Regulators are looking into whether companies like Lloyds and Close Brothers mis-sold products to customers by using hidden so-called discretionary commission arrangements.

These saw lenders let brokers and car dealers raise the interest on car finance agreements to increase the amount they get on commission, meaning customers overpay without knowing.

The practice was banned in 2021, after regulators found it was costing drivers far more than the flat fees used in car finance today.

Lloyds and Close Brothers have already set aside hundreds of millions of pounds to cover the potential costs relating to the issue, including an expected wave of compensation payouts.

Lloyds said on Monday that its understanding of “compliant disclosure” of commissions was built on regulators’ advice at the time.

It added that the Court of Appeal rulings “go beyond the scope of the current FCA motor commissions review”.

Shares fell a further 1.2% in Monday morning trading.