Close Brothers Faces Fresh Losses Amid Car Loan Redress Crisis

Close Brothers has been dealt a significant blow as the bank announced an additional £33 million provision to reimburse customers for overpayments within its car loans division. This charge compounds a prior £165 million set aside for a wider motor finance scandal, with the cumulative impact pushing the London-based merchant bank into a £122.4 million loss for the previous year.

The latest setback surfaced in the bank’s delayed full-year results, which were postponed after auditors PwC requested more time to finalise their assessment. The issue impacts borrowers who settled their car finance agreements early, resulting in unreturned overpayments. Chief Executive Mike Morgan described the problem as “a lot of very small amounts going back some time”, stressing the matter is limited to the car loans business. He clarified the provision is only an estimate and could change as more details emerge.

Close Brothers, one of the City’s oldest financial names, has weathered rising turbulence since the Financial Conduct Authority launched a far-reaching inquiry into the motor finance market last year. This review scrutinises hidden or insufficiently disclosed commissions paid to dealers arranging car finance for consumers. With motor finance making up nearly £2 billion of the bank’s £9.5 billion loan book, the group remains exposed to material risks from regulatory action.

The FCA has warned that the redress scheme for undisclosed commissions could cost the industry between £9 billion and £18 billion, with details set to be released soon. The scandal echoes the scale of the infamous payment protection insurance affair, which ultimately cost lenders around £50 billion. Although Close Brothers has earmarked £165 million for this matter, it acknowledges the potential compensation bill could be “materially higher or lower”, depending on the FCA’s final approach.

Investor confidence has faltered in light of these issues, with the bank forced to bolster its reserves by more than £400 million. Asset disposals and the suspension of dividend payments have followed, alongside mounting provisions and impairments. An extra £30 million writedown of its loss-making vehicle hire business reflects the broader challenges faced.

Premium finance—another of Close Brothers’ core segments—has itself come under regulatory review as the FCA questions whether lenders are profiting excessively from helping consumers spread insurance costs. The bank has since concentrated its premium finance operations on commercial clients in a bid to improve returns and stability.

Chief Executive Mike Morgan has called on regulators to bring clarity and closure to the saga, contending the uncertainty has already dragged on long enough. Expected payouts to affected car loan customers are likely to begin next year, with most recipients estimated to receive less than £950 each. Lenders across the sector, including the motor finance arms of major car manufacturers, are preparing for the industry’s largest ever consumer compensation programme.