Close Brothers Group PLC on Tuesday nearly doubled its provision for motor finance compensation, even as the merchant bank complained that the redress plan set out by the UK regulator is not ‘proportionate’ and won’t match ‘actual customer loss’.
Close Brothers raised its provision for customer payouts to £300 million from £165 million, citing the the consultation paper published by the UK Financial Conduct Authority last week.
The London-based bank said the higher provision reflects ‘a greater likelihood that more historical cases, particularly those involving discretionary commission arrangements’ will qualify for redress. The FCA’s proposed redress methodology also could result in higher compensation levels than covered by the original provision, it said.
In announcing the higher provision on Tuesday, Close Brothers said it is ‘committed to achieving a fair outcome for customers and providing redress where loss has occurred’, but it said it doesn’t think the FCA’s proposed redress methodology ‘appropriately reflects actual customer loss or achieves a proportionate outcome’.
Close Brothers shares were down 3.1% to 433.20 pence early Tuesday in London. However, the stock had dropped 13% on Thursday last week after it warned that a ‘material’ increase to its provision would be needed.
Close Brothers shares remain up 83% so far in 2025, recovering from the initial shock of the UK court ruling last year that launched the redress process, but they are down 45% since the start of 2024.
The total £300 million provision includes redress and some operational costs and is the firm’s best estimate ‘at this stage’.
‘The ultimate cost to the group could be materially higher or lower than the estimated provision depending on the outcome of the consultation and any further legal, regulatory or industry developments,’ Close Brothers said.
Last week, the FCA said car finance mis-selling will cost providers around £8.2 billion, with an additional £2.8 billion of administrative costs, taking the total to £11 billion.
The UK regulator said its investigation had found ‘widespread failures to adequately disclose the existence and nature of commission and contractual ties between lenders and brokers,’ which led some customers to overpay on car loans.
Under the proposed redress scheme, customers may be entitled to compensation if their car finance agreements involved discretionary commission arrangements, where dealers could increase interest rates to boost their commission, or where commission exceeded 35% of the total cost of credit or 10% of the loan value.
On Monday, Lloyds Banking Group PLC said it plans to book an additional £800 million provision related to motor finance, taking its total provision for redress to £1.95 billion.
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