Close Brothers lifts motor finance redress provision to £300m

(Sharecast News) - https://www.sharecast.com/news/news-and-announcements/lloyds-hikes-motor-finance-redress-costs-by-pound800m--21030766.htmlClose Brothers said on Tuesday that it was increasing its motor finance redress provision to £300m following the Financial Conduct Authority's ruling on the scandal last week. The merchant bank had previously set aside £165m based on a range of probability-weighted redress scenarios.

It said the FCA's proposals last week indicated the potential financial impact would sit towards the higher end of the group's previous scenario.

The FCA ruled last week that lenders must pay out £11bn including costs after finding "widespread failings" in how motor finance firms disclosed commission payments and commercial ties between lenders and brokers on agreements signed between 6 April 2007 and 1 November 2024.

Close Brothers said: "While uncertainty in relation to the outcome of the consultation remains, the group has updated its range of probability-weighted scenarios resulting in an additional expected charge of around £135m, increasing the total provision to approximately £300m.

"This reflects a greater likelihood that more historical cases, particularly those involving Discretionary Commission Arrangements, would qualify for redress, as well as the possibility of the proposed redress methodology resulting in higher compensation levels than reflected in some of the group's previous range of scenarios."

Close Brothers hit out at the FCA, arguing that the redress methodology proposed does not appropriately reflect actual customer loss or achieve a proportionate outcome.

"In addition, the FCA's proposed approach to assessing unfairness does not align with the legal clarity provided by the Supreme Court judgement in respect of the 'Johnson' case, which confirmed that the test for unfairness is highly fact specific and must take into account a broad range of factors," it said.

"The group will continue to engage with the FCA in respect of these points."

Despite the increased provision, Close Brothers said it remains confident in its capital strength, with a Common Equity Tier 1 ratio of 13.8% as at 31 July 2025.

The additional provision is expected to reduce the CET1 capital ratio by about 130 basis points on a pro-forma basis as at the end of July.

At 0940 BST, the shares were down 3.4% at 431.84p.

On Monday, LLoyds announced it was putting aside a further £800m to cover compensation costs related to the motor finance mis-selling scandal.

The bank said it has now made a £1.95bn provision, including both redress and operational costs, up from £1.15bn previously.