Lloyds Banking Group and Close Brothers Scrutinise FCA Motor Finance Compensation Scheme Changes

The Financial Conduct Authority confirmed on Monday evening that millions of motor finance customers are set to receive increased compensation under a scheme designed to address historic misselling practices. The regulatory intervention follows widespread concerns regarding firms that breached legal requirements by failing to disclose material information to consumers.

The FCA has revised its compensation estimates, with affected customers now expected to receive an average payment of £830 during the current year. This represents an upward adjustment from the initial £700 average outlined in the regulator’s October consultation. The authority has simultaneously reduced its estimate of consumer participation from 85% to 75% of eligible claimants, resulting in a total anticipated redress bill of £7.5 billion across the sector.

Lloyds Banking Group stated on Tuesday morning that the final scheme details differ materially from the framework presented in October 2025. The group confirmed it is conducting a detailed assessment of the implications and potential impact of the finalised rules, with a commitment to update the market when appropriate.

Close Brothers Group similarly announced its intention to evaluate the redress scheme’s potential consequences for the group following the FCA’s overnight announcement.

Jefferies analysts advised investors to exercise caution when interpreting headline figures. Whilst the FCA’s £7.5 billion industry-wide compensation estimate sits approximately 9% below the figure contained in October’s consultation paper, the analysts noted that numerous aggregate-level assumptions have been modified. This renders direct transposition onto individual banking institution loss assumptions unhelpful.

The investment bank suggested that Lloyds would likely have structured its firm-specific provision with comprehensive consideration of various scenarios. When establishing its original £1.95 billion provision, Lloyds explicitly indicated that the heaviest weighting had been applied to an unchanged regulatory environment scenario.

Jefferies concluded that the complexity of the final rules makes definitive assessments premature, particularly ahead of Lloyds’ own analysis. The firm’s initial view suggested difficulty in identifying grounds for material provision increases at Lloyds, with potential for modest releases over time.

Market reaction proved positive on Tuesday, with Lloyds Banking Group shares advancing 1.7% and Close Brothers rising 2.7%. Barclays, which maintains some exposure to motor finance activities, gained 1.3%, matching the performance of Vanquis Banking Group.