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2mo ago

Close Brothers Allocates £165m for Car Loan Compensation Costs

The lender faces legal challenges and regulatory scrutiny over hidden commission payments in motor finance deals from 2007 to 2021.

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Close Brothers is at the centre of a looming crisis facing the motor finance industry, with major lenders on the hook for potentially billions of pounds of compensation

Overview

  • Close Brothers, a major UK motor finance lender, has set aside up to £165 million to cover potential legal and compensation costs linked to a car loan commission scandal.
  • The Financial Conduct Authority (FCA) is investigating past practices where car dealers set interest rates to earn undisclosed commissions, a practice banned in 2021.
  • A Court of Appeal ruling in October 2024 deemed such commission payments unlawful without borrowers' informed consent, opening the door for further consumer claims.
  • Close Brothers plans to appeal the ruling in the Supreme Court and has bolstered its financial position, including selling its wealth management division for £200 million.
  • Analysts predict the total industry compensation costs could reach £8–£13 billion, with other lenders like Lloyds Banking Group already setting aside significant reserves.