One effect of the hike in expected provisions for handling fallout from the motor finance saga is that Close Brothers will see a dent to its capital buffer, although it is still above the regulatory requirement, the UK-listed bank said.

Yesterday, UK-listed bank Close Brothers said it was bracing to pay a charge of around £300 million ($399.4 million) to handle expected redress over motor finance commissions, £135 million more than its existing provision. 

The additional sum will reduce Close Brothers’ Common Equity Tier 1 capital ratio – a standard international measure of a lender’s shock absorber capital.

The bank said it updated its predictions after the Financial Conduct Authority issued a consultation paper on 7 October about a proposed industry-wide redress scheme. The motor finance scandal centres around car finance deals that were sold in ways that were not fully transparent or fair, particularly through hidden commission schemes and discretionary commissions. The FCA's proposed scheme would cover regulated motor finance agreements taken out by consumers between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker. Based on an 85 per cent of eligible consumers taking part, the industry will face an £11 billion total redress bill, with around £700 in the average compensation per case. It will cost firms £2.8 billion to implement the scheme, with £8.2 billion to be paid out. 

The FCA's move has prompted Close Brothers to raise its likely provision, the bank said. 

Close Brothers said it had a Common Equity Tier 1 ratio of 13.8 per cent (14.3 per cent reflecting the disposal of Winterflood) as at 31 July 2025. It expects the added provision is expected to reduce the CET1 capital ratio by around 130 basis points on a pro-forma basis as at 31 July 2025. 

Considering the estimated CET1 benefit from the sale of Winterflood of about 55 bps alongside the impact of the estimated provision, the pro-forma CET1 capital ratio would be around 13.0 per cent – significantly above the group's regulatory requirement of 9.7 per cent.

Outlining its Motor Finance Consumer Redress Scheme, the FCA said: “We believe a compensation scheme is the best way to ensure consumers who have lost out receive compensation in an orderly, consistent and efficient way. It will also help maintain a well-functioning motor finance market for the millions of people that rely on it.” Its consultation runs until 18 November, it said in a 360-page report. (The document is CP25/27.)

In early March, Close Brothers completed the sale of its asset management business to US-based Oaktree Capital Management. 

Higher end
“The FCA consultation provides more detail on the proposed redress scheme, including the commission models that would be in scope, how unfairness would be assessed, and the proposed approach to calculation of redress. The proposals indicate that the potential financial impact would sit towards the higher end of the group's previous scenarios,” the bank said. 

Close Brothers said it does not think that the FCA’s proposed redress methodology “appropriately reflects actual customer loss or achieves 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. The group will continue to engage with the FCA in respect of these points,” it said. 

The problem
The FCA said more than two million people use motor finance each year, with £39 billion borrowed in 2024, making it the second largest consumer credit market. 

Between April 2007 and October 2024, there were approximately 32.5 million motor finance agreements sold. 

“An industry-wide redress scheme is the best way to provide timely and fair redress to consumers while protecting the integrity of this vital market and providing certainty as quickly as possible for all involved. Other approaches would add significant cost, be less orderly and take much longer,” the regulator said. 

The FCA’s review, which covers data from 32 million agreements, found “widespread failings on how motor finance firms disclosed commission payments and commercial ties between lenders and brokers.” 

“Inadequate disclosure of commission means consumers are less likely to make informed decisions, negotiate or shop around for a better deal. Our analysis indicates that many people may have overpaid on their motor finance,” it said.

More than four million consumers have complained to their firm. Where firms have considered complaints, more than 99 per cent were rejected and more than 80,000 consumers have taken their complaint to the Financial Ombudsman Service.

The Financial Ombudsman made decisions in January 2024 in two cases involving discretionary commission arrangements (DCAs) – where the broker could adjust the interest rate offered to a customer to obtain a higher commission. One lender (Clydesdale Financial Services Limited (Clydesdale)), challenged this decision.

On 17 December 2024, the High Court rejected Clydesdale’s challenge that the Financial Ombudsman had misinterpreted our rules. The Court found that the Financial Ombudsman was entitled to find that the broker and lender did not adequately disclose the commission arrangement and that meant the relationship between the lender and the borrower was unfair and therefore unlawful, the FCA continued. 

The High Court also dismissed the challenge to the Financial Ombudsman’s approach to compensation. The Financial Ombudsman had awarded a refund of some of the interest paid, based on the interest rate it considered would have been the likely outcome had there been adequate disclosure.

Several thousand consumers also challenged their agreements with lenders through the courts. Courts took different approaches resulting in a Court of Appeal ruling in October 2024. On 1 August 2025, the Supreme Court overturned aspects of the Court of Appeal judgment but still found that a lender acted unfairly – and therefore unlawfully – because of the high, undisclosed commission paid to the broker and the failure to disclose a commercial tie. In that case (Johnson), the Supreme Court said the commission plus interest at a commercial rate should be repaid to the borrower. 

In choosing to decide this remedy itself rather than asking a lower court to reconsider the matter, the Supreme Court cited the FCA’s submissions that the public interest would be aided by an authoritative ruling from the court, given the thousands of pending complaints and claims, the regulator added.