Close Brothers takes swing at FCA after near-doubling motor finance provisions
Close Brothers’ frustration at the City watchdog has stepped up a gear after the firm was forced to almost double its provisions for the motor finance scandal.
The FTSE 250 lender, which had previously set aside £165m, hiked its provisions by a further £135m following the Financial Conduct Authority outlining details of its industry-wide redress scheme last week.
But, the bank took aim at the regulator’s interpretation of the Supreme Court ruling in August.
The group said: “[Close Brothers] does not believe the redress methodology proposed by the FCA appropriately reflects actual customer loss or achieves a proportionate outcome.”
It added the approach from the FCA to assessing “unfairness” did not align with the top Court’s ruling in August.
The Supreme Court sided with lenders on two out of three cases relating to the car-misselling saga, but upheld the case of one claimant under the grounds their 55 per cent commission was “unfair.”
However, the FCA has said the threshold for its redress – where 14.2m agreements are estimated to be eligible – will be 35 per cent.
The FCA expects the scheme to cost £11bn, which fell at the lower end of previous estimations of £9bn to £18bn.
A spokesperson for the FCA: “Many motor finance lenders did not comply with the law or the rules. It’s time their customers get fair compensation.
“Recent court judgments show that liabilities exist no matter what. We believe our scheme is the best way to settle the issue for both consumers and firms, and alternatives would be more costly and take longer.”
The regulator added: “We recognise not everyone will get everything they would like. But it’s vital we draw a line under the issue so a trusted motor finance market can continue to serve millions of families every year.”
Close Brothers follows suit with Lloyds’ FCA lashings
The move from Close Brothers follows Lloyds Banking Group, which owns the UK’s largest motor finance lender Black Horse, raising provisions to £2bn on Monday.
Lloyds also criticised the redress proposed by the FCA and said the scheme was not proportional or reasonable in ensuring customers were rightly compensated and it did not reflect the “actual loss” of borrowers.
Executives at BMW, which is on the hook for over £200m, have lobbied for a meeting with Chancellor Rachel Reeves over fears regarding the regulator’s redress scheme, The Times reported.
The Chancellor attempted to take the wheel in the motor finance battle earlier this year, but faced a roadblock from the Supreme Court.
Reeves was denied intervention in the case by the top Court and ahead of the ruling, speculation spread the Chancellor was plotting to overrule an adverse judgment.
The City had feared an eye-watering bill of up to £44bn if the Supreme Court upheld the entirety of the Court of Appeal’s October 2024 ruling. This spiked fears of a total collapse in the car financing market making consumers unable to obtain critical necessary loans.
Close Brothers said despite the fresh provision it remains confident in its CET1 ratio – a key indicator of a lender’s financial health – of 13.8 per cent.
But the additional fund is expected to hit CET1 by near 30 basis points, reducing the anticipated benefit from the lender offloading its Winterflood arm earlier this year.