Banking group Close Brothers has increased its total provision for the motor finance mis-selling scandal to £320 million, after setting aside a further £30 million in its latest quarterly update. The figure reflects the growing certainty that a significant compensation bill is coming, even as the precise mechanism for paying it remains the subject of a legal battle.
How the scandal unfolded
The saga has its roots in the widespread use of discretionary commission arrangements, under which car dealers were permitted to set the interest rate on a customer’s finance agreement, with higher rates generating larger commissions for the dealer.
Consumers were not told about this arrangement. A Court of Appeal ruling in late 2024 found the practice unlawful, opening the door to compensation claims on a scale that some analysts have compared to the PPI scandal.
Close Brothers was among the lenders with the heaviest exposure, given the size of its motor finance book. The group has been absorbing the consequences ever since, with provisions steadily climbing as the regulatory framework for compensation takes shape.
A business under pressure
Those provisions have done serious damage to the group’s finances. Pre-tax operating losses reached £65. million for the six months to 31 March, though that represented a meaningful improvement on the £102.2 million recorded in the same period a year earlier.
Against that backdrop, Close Brothers has moved aggressively to cut costs. In March, the group announced plans to cut around 600 jobs, nearly a quarter of its 2,600-strong workforce across the UK and Ireland, over an 18-month period, through a combination of outsourcing, offshoring, office reductions, and the accelerated use of artificial intelligence.
Last week’s update confirmed the group is on track to exceed its £25 million annualised savings target for the year, keeping its expected operating loss for central functions at the lower end of its £45 million to £50 million guidance range.
Chief executive Mike Morgan described the capital position as strong and pointed to a 1% increase in the loan book to £9.3 billion in the third quarter as evidence of continued commercial momentum. Investors were less convinced, sending shares down 3% in early trading.
The FCA scheme faces a legal challenge
The wider context for consumers seeking compensation shifted significantly this month. The FCA finalised its industry-wide redress programme in late March, setting a target of returning £7.5 billion to consumers, with claims expected to be paid in 2026 and the vast majority settled by the end of 2027. The scheme covers motor finance agreements entered into between 2007 and 2024 and is free for consumers to use.
That timetable has since been thrown into doubt. On 1 May, the FCA confirmed the scheme had been legally challenged, and vowed to defend it robustly.
Four separate parties launched legal actions: two vehicle manufacturers’ finance arms, Mercedes-Benz Financial Services and Volkswagen Financial Services, the French banking subsidiary Crédit Agricole Auto Finance, and a consumer advocacy group called Consumer Voice.
Two are lenders with direct financial exposure to the programme; a third is a consumer group that considers the proposals insufficient.
The FCA has since told lenders to prepare for a potential court decision in mid-November 2026, making it unlikely the mass redress scheme will begin before then.
The question is no longer whether, but when
For affected consumers, the legal challenge delays the process but does not fundamentally alter its destination. Here is why:
- Lenders contesting the FCA’s framework are not arguing that no wrongdoing occurred.
- The Supreme Court has already upheld the principle that undisclosed commission arrangements created unfair relationships between lenders and borrowers.
- The dispute centres on the mechanism and scope of the remedy, not on whether one is owed.
Close Brothers’ decision to raise its provision to £320 million, alongside the scale of its restructuring, is itself a statement of intent. A group that did not expect to pay would not be cutting hundreds of jobs and absorbing operating losses to build a reserve of that size.
For the millions of motorists who took out car finance between 2007 and 2024, the practical message is straightforward: the compensation is coming, but the wait has grown longer.
