Close Brothers sets aside £165 million amid motor finance scandal

In the United Kingdom, Close Brothers has announced its intention to set aside up to £165 million for potential legal and compensation costs related to a significant scandal in the motor finance sector. The decision follows a thorough assessment of the developments surrounding car loans where hidden commission payments were in question. This unfolding crisis has raised concerns across the industry, as lenders face the risk of billions in compensation claims due to past agreements that lacked transparency and informed consent from consumers. Recent judgments from the Court of Appeal have determined that it was unlawful for car dealers to earn commission without customer consent, leading to increased scrutiny and potential complaints from affected consumers. Close Brothers has indicated that the financial provision may fluctuate based on the outcomes of ongoing legal appeals and the review by the Financial Conduct Authority (FCA). The firm highlighted the inherent uncertainty regarding the financial impact on its operations, stating that the ultimate costs could be significantly different from the current estimates. Moreover, the provision is expected to affect Close Brothers' capital strength, although the company reassured stakeholders that it would remain above regulatory requirements and is well-positioned to manage the financial strain. The Supreme Court is scheduled to address the case related to the hidden commissions in April, which could further clarify the legal ramifications for lenders in the motor finance market. Analysts have suggested that the implications of the October ruling could lead to necessary adjustments in compensation estimates across the industry, with some projecting damages to reach as much as £44 billion. Major financial institutions like Lloyds Banking Group and Santander UK have already begun making substantial provisions to cover potential compensation costs resulting from the fallout of this crisis. Investors and market analysts are closely monitoring the situation. Banking experts generally find the size of Close Brothers' provision reasonable, interpreting it as a potentially positive sign that may help the company avoid deeper financial troubles like an equity raise or additional asset sales. The economic landscape surrounding motor finance remains precarious as the industry grapples with the challenges presented by legal rulings and an increasing focus on consumer rights and transparency. The forthcoming debate in the Supreme Court is expected to provide further guidance on the standards for motor finance commissions in the UK and establish precedents for future business operations in this sector.