Close Brothers has said Britain's motor finance redress scheme will cost it about £320 million, broadly in line with its existing provision, days after the regulator put the industry's total bill at £9.1 billion in one of the country's costliest financial scandals.
The merchant bank said the expected cost would trim its Common Equity Tier 1 capital ratio, a key measure of financial strength, by roughly 25 basis points to about 14 per cent on a pro-forma basis — still comfortably above its medium-term target range. Its existing provision stood at £294 million, and it estimated an average redress payment of around £500 per customer.
The scandal centres on car finance deals in which dealers earned commission from lenders without customers being properly told. Millions of drivers who bought cars on finance may be entitled to compensation, making the affair the biggest consumer redress exercise since the payment protection insurance debacle that cost British banks tens of billions.
Close Brothers has been among the lenders most exposed because of the size of its motor finance business relative to the rest of the group. In March it said it would cut a fifth of its workforce by 2027 as it grappled with the costs, a stark illustration of how a controversy over commission disclosure has reshaped a mid-sized British bank.
The £9.1 billion industry estimate set by the regulator covers lenders across the market, from high-street banks to specialist motor finance firms. Consumer groups have welcomed the scheme as long overdue, arguing that drivers were kept in the dark about arrangements that could have influenced the price they paid.
Lenders, by contrast, have warned about the scale and complexity of reviewing huge numbers of historic agreements. For Close Brothers, confirming a figure close to its provision removes one uncertainty, but the affair will continue to weigh on its earnings, staffing and strategy for years.
The motor finance scandal has also revived a familiar British argument: how an opaque industry practice, tolerated for years, can suddenly become a multibillion-pound liability once regulators and courts decide consumers were misled.
The affair has a long tail for ordinary borrowers as well as for the bank. Redress schemes of this size require lenders to trace old agreements, calculate what customers are owed and contact people who may have changed cars, addresses and banks several times since. Consumer representatives say clear communication will decide whether the scheme restores trust or simply creates a new round of confusion and claims-management fees. Close Brothers, having put a number on its exposure, now faces the slower and less visible work of paying the money back.