Several motor finance lenders have significantly increased their provisions ahead of the Financial Conduct Authority’s (FCA) redress scheme for discretionary commission arrangements (DCAs), indicating that financial institutions are now preparing for a substantive compensation exercise rather than a theoretical exposure.
The FCA has indicated that more than 14 million agreements may fall within scope. Industry-wide redress could reach approximately £11 billion once the scheme is finalised. Against this backdrop, Bank of Ireland Group, Secure Trust Bank, and Close Brothers have all increased their expected liabilities, each by a meaningful margin.
Bank of Ireland Group: Provision Rises from £143m to £350m
Bank of Ireland originally expected to allocate approximately £143 million to cover potential redress. It has now lifted that figure to around £350 million, an increase of more than £200 million. Although the group holds a relatively small share of the UK motor-finance market, the scale of the revision indicates a materially higher level of expected eligibility than previously assumed.
The company has reported that this revised provision will reduce its CET1 ratio by approximately 35 basis points to 15.65% (The Group is required to maintain a CET1 ratio of 11.31% on a regulatory basis as at 31 December 2024). The CET1 ratio is the main measure of a bank’s financial resilience, and a reduction means the financial institution has less capital margin above the regulatory minimum.
This is a significant reallocation of regulatory headroom (the cushion between the bank’s current capital and the minimum capital it is legally required to hold), demonstrating that the group regards the redress scheme as both likely and substantial.
Bank of Ireland has also questioned the proportionality of the FCA’s methodology, signalling that a challenge or an interpretative dispute may arise once implementation begins.
Secure Trust Bank: Five-Fold Increase to £21m
Secure Trust Bank had initially made only a limited allowance for exposure relating to administrative and handling costs. It has now increased its provision to approximately £21 million, of which around £16 million relates directly to consumer redress. The company has also indicated that a further £6 million may be required, depending on the FCA’s final methodology.
While Secure Trust’s absolute exposure is smaller than that of other lenders, the capital impact is comparatively heavier: the group expects a CET1 reduction of approximately 50 basis points to 12.8% (the bank’s regulatory requirement for CET1 is 9.6%), reflecting the sharper proportional effect on a smaller balance sheet.
The company has described the FCA’s consultation proposals as being “towards the extreme end of expectations”, highlighting the divergence between regulator and lender on what constitutes fair compensation.
Close Brothers: Provision Increases from £165m to £300m
Close Brothers had previously provisioned £165 million for potential motor-finance redress. It has now expanded this to approximately £300 million, an increase of £135 million. This aligns its projected exposure with that of Bank of Ireland in absolute terms and indicates a reassessment of both the volume of eligible agreements and the likely cost per customer.
The group has similarly expressed concerns regarding the FCA’s methodology, particularly in relation to causation and the approach to quantifying consumer detriment. Close Brothers has also noted that final liability could be “materially higher or lower”, underscoring the degree of uncertainty that will remain until the regulator confirms its final scheme design.
Consequences for Borrowers and Claims
The acceleration of provisioning activity by Bank of Ireland, Secure Trust Bank, and Close Brothers is a clear indicator that the FCA redress scheme is approaching implementation and that lenders are preparing to meet claims on a structured basis. The direction of travel is now firmly towards restitution, with the debate increasingly centred not on whether compensation is due, but on how it will be calculated and administered.
Motorists who financed vehicles between 2007 and 2024 are likely to fall within the scope of the framework. If you wish to understand whether your own agreement is eligible for redress, you can do so using our eligibility checker, which provides an initial assessment before the FCA’s final scheme is published.
