Close Brothers has increased the amount it has set aside for motor finance commission compensation to around £320 million as the lender continues preparing for the FCA's industry-wide redress scheme [1].

The banking group recorded a further £164.7 million charge relating to historic motor finance commissions during the financial year to 31 July 2026 in relation to the wider car finance scandal, according to its latest annual results.

At the end of July, its balance-sheet provision stood at £318.5 million after further costs had been used from the provision, partially offset by an adjustment for the time value of money.

The additional charge contributed to another statutory loss for Close Brothers, although the group's operating loss before tax narrowed significantly from £122.4 million in the previous year to £60.3 million.

Close Brothers has also confirmed that it will not challenge the FCA's Motor Finance Consumer Redress Scheme, despite disagreeing with some aspects of the regulator's approach.

It is continuing to prepare to deliver redress under the existing scheme while also considering alternative scenarios that could result from the ongoing legal challenges.

Why has Close Brothers set aside around £320m?

The provision reflects Close Brothers' current estimate of the potential cost of resolving historic car finance mis-selling cases under the FCA car finance redress scheme rules.

During the financial year, the group increased its provision by around £135 million in October 2025 and another £30 million in April 2026 [2]. These changes resulted in the £164.7 million charge recorded in its latest results.

Close Brothers said its provisioning approach reflects the rules set out in the FCA's final Motor Finance Consumer Redress Scheme, published on 30 March 2026 [3].

In an update published in April, Close Brothers estimated that around 720,000 UK regulated motor finance loans written between 6 April 2007 and 1 November 2024 would qualify for redress under the scheme as published.

This included around 640,000 loans written under discretionary commission arrangements, or DCAs, and a further 80,000 non-DCA loans that the lender considered likely to meet the FCA's criteria for tied arrangements and/or high commission.

Close Brothers also estimated an average redress payment of around £500 per customer, including compensatory interest.

That is below the FCA's estimated industry-wide average of £829 [4]. Close Brothers said the difference reflects the relatively smaller loan sizes and lower commission levels within its own historic motor finance book.

These remain estimates rather than guaranteed compensation amounts. The amount an individual consumer could ultimately receive will depend on their agreement, whether it qualifies under the scheme and the redress calculation that applies.

Close Brothers will not challenge the FCA scheme

Close Brothers has chosen not to bring its own legal challenge against the FCA's redress scheme.

The group said there are aspects of the scheme with which it disagrees, but that it decided not to challenge the rules in order to provide an orderly resolution for all parties.

Instead, it is continuing to prepare to deliver redress under the scheme while also preparing for alternative scenarios that could arise from the separate legal challenges.

Parts of the scheme's implementation have been temporarily suspended by the Upper Tribunal [5] while those challenges proceed.

For consumers with potential Close Brothers car finance claims, the lender's increased provision should therefore not be interpreted as confirmation that individual payments are about to be made.

The legal process is still ongoing, while individual agreements will need to meet the relevant eligibility criteria before any compensation can be determined.

Another annual loss for Close Brothers

Motor finance provisions had a significant effect on Close Brothers' latest financial results.

The group reported adjusted operating profit of £120.3 million for the year to 31 July 2026, down 17% from £144.3 million a year earlier.

After adjusting items, including the £164.7 million motor finance claims provision, the group recorded a statutory operating loss before tax of £60.3 million.

That was nevertheless substantially smaller than the £122.4 million operating loss before tax recorded in the previous financial year.

Close Brothers also recorded £7.7 million of other motor finance commission-related costs during the year. These included complaints handling, operational and legal costs and the unwinding of the time value discount, partially offset by insurance recoveries.

The company has also been simplifying its wider operations and reducing costs while preparing for the potential financial impact of motor finance compensation.

Annualised cost savings reached around £36 million during the year, ahead of its target of approximately £25 million.

Chief executive Mike Morgan said the group had taken action to exit non-core activities, reduce costs and sharpen its focus on specialist lending markets [6].

Close Brothers holds back final dividend

The uncertainty surrounding motor finance has also affected Close Brothers' decision on shareholder distributions.

The group said it would not pay a final ordinary dividend for the 2026 financial year.

It specifically cited continued uncertainty over the outcome of the legal challenges to the FCA's motor finance redress scheme and their potential financial impact.

Close Brothers said it remains committed to resuming shareholder distributions at an appropriate time and will reassess its options once there is greater certainty around motor finance commissions.

The lender has previously said that the estimated cost of the FCA scheme as published could be absorbed by its existing capital resources.

Does the £320m provision mean customers will receive £320m?

Not necessarily.

An accounting provision represents the company's current estimate of a potential financial obligation. It is not the same as money that has already been awarded or paid to consumers.

Close Brothers' eventual car finance compensation cost could differ depending on factors including the outcome of the legal challenges and how the FCA scheme is ultimately implemented.

The £318.5 million provision recorded on the balance sheet at the end of July therefore provides an indication of the potential financial exposure rather than a confirmed final payout figure.

Similarly, Close Brothers' estimate of around £500 in average redress should not be treated as a standard payment for every customer.

Individual outcomes will depend on the circumstances of each finance agreement and the redress calculation that applies.

What does this mean for Close Brothers car finance claims?

Consumers do not need to assume that the latest £320 million figure determines whether they personally qualify for compensation.

The FCA scheme covers certain regulated motor finance agreements entered into between 6 April 2007 and 1 November 2024, subject to its eligibility rules.

Potentially unfair arrangements covered by the scheme include certain discretionary commission arrangements, high commission and undisclosed ties between lenders and brokers.

However, having financed a vehicle through Close Brothers during the relevant period does not automatically mean a consumer is entitled to compensation.

Eligibility depends on the circumstances of the individual agreement and the FCA's criteria.

Consumers can make a complaint directly to their lender for free. They can also choose professional representation, such as an FCA-regulated claims management company or a solicitor, although fees may apply.

What happens next?

Close Brothers says it will continue preparing for implementation of the FCA scheme while monitoring the legal challenges and preparing for possible alternative outcomes.

For the lender, the latest results demonstrate the financial significance of historic car finance commission issues. It has now recognised a provision of around £320 million while also reducing costs and simplifying the wider business.

For consumers, however, the latest financial figures do not change the fundamental question behind a Close Brothers mis-sold car finance claim.

The size of the lender's provision does not determine whether an individual agreement qualifies or how much compensation a customer could ultimately receive.

Further clarity will depend in part on the outcome of the legal proceedings surrounding the FCA scheme and what those proceedings mean for its implementation and the timetable for redress.

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References:

1. Close Brothers has increased the amount it has set aside for motor finance commission compensation to around £320 million as the lender continues preparing for the FCA's industry-wide redress scheme - https://www.independent.co.uk/news/business/shares-b2953640.html
2. During the financial year, the group increased its provision by around £135 million in October 2025 and another £30 million in April 2026 - https://www.investegate.co.uk/index.php/announcement/rns/close-brothers-group--cbg/preliminary-results/9795269
3. the FCA's final Motor Finance Consumer Redress Scheme, published on 30 March 2026 - https://www.fca.org.uk/publications/policy-statements/ps26-3-motor-finance-consumer-redress-scheme
4. the FCA's estimated industry-wide average of £829 - https://www.fca.org.uk/publication/policy/ps26-3.pdf
5. Parts of the scheme's implementation have been temporarily suspended by the Upper Tribunal - https://www.fca.org.uk/news/statements/motor-finance-scheme-partially-suspended
6. Chief executive Mike Morgan said the group had taken action to exit non-core activities, reduce costs and sharpen its focus on specialist lending markets - https://www.independent.co.uk/news/business/shares-financial-conduct-authority-press-association-holly-williams-b3058022.html