Close Brothers Group has raised its provision for potential motor finance commission redress to around £300 million following further clarity from the Financial Conduct Authority’s (FCA) consultation on an industry-wide compensation scheme.

The FCA published its consultation on October 7, outlining how redress would be calculated and which commission models would be included.

Close Brothers said the new details suggest the financial impact will be toward the higher end of its earlier estimates.

The group’s previous provision of £165m has been increased by about £135m to reflect a greater likelihood that more historic cases, particularly those involving discretionary commission arrangements bac as far as 2007, will qualify for redress.

The FCA said that its redress programme could impact 14.2m finance agreements dating back to 2007 due to widespread failures to adequately disclose the existence and nature of commission between finance houses and dealerships.

The FCA estimates people would receive around £700 on average.

Based on the number of consumers the FCA estimates could take part in the scheme, lenders could pay out £8.2 billion in compensation. The financial regulator has now launched a consultation on its plans which will close on November 18.

Share price impact

Close Brothers' share price dropped last week after it announced its first estimate on provisions relating to the redress scheme.

The 10% on October 10 has been followed by a further 13% fall to 433.13p following Close Brother's announcement on the new level of funding provision to investors.

It also anticipates the FCA’s proposed calculation method could lead to higher compensation levels.

Close Brothers said it remains committed to fair outcomes for customers but argued that the FCA’s proposed methodology does not reflect actual customer loss or align with the Supreme Court’s Johnson judgment, which found that unfairness should be assessed on a case-by-case basis.

The bank said it will continue to engage with the regulator on these issues.

 

The total provision, which includes redress and related operational costs, represents the group’s current best estimate, although the ultimate cost could be higher or lower depending on the outcome of the consultation and any future developments.

Further details on the redress scheme are expected in November, with the FCA hoping to launch it early next year.

Motor finance redress and regulation to take centre stage at Automotive Management Live

 

Industry, consumer and regulatory impacts of the FCA’s proposed £8.2 billion redress scheme among topics to be debated at the NEC on November 12 at Automotive Management Live.

An expert panel will explore the latest developments in motor finance, including the Financial Conduct Authority’s (FCA) proposed redress scheme for mis-sold car loans, expected to compensate up to 14 million motorists.

The session will examine how the FCA’s redress consultation, the Supreme Court ruling on motor finance commissions and shifting consumer sentiment are shaping the future of the sector.