Close Brothers is to set aside up to £165million to cover a motor finance mis-selling scandal that could leave the sector with a bill of tens of billions. The lender said it wanted to cover legal and compensation costs for affected customers – but that ‘significant uncertainty’ remained amid ongoing action. And analysts at Canadian Bank RBC said the figure implied that Lloyds, which has already taken a £450million hit over the scandal, would have to put aside a further £1.2billion when it reports full-year results next week.
The scandal has also hit Santander UK, which has made a £295million provision. Appeal court judges ruled last October that it was unlawful for car dealers to receive commission on motor finance from lenders without a customer’s consent. Hundreds of thousands of drivers have complained and the Financial Conduct Authority (FCA) has begun an investigation into customers being overcharged. Mis-selling: Car lender Close Brothers said it wanted to cover legal and compensation costs for affected customers – but that ‘significant uncertainty’ remained amid ongoing action.
An FCA official told MPs in December that the scandal could cost the sector as much as the £50billion payment protection insurance debacle more than a decade ago. Close Brothers has won permission to appeal against the ruling. The case will be heard by the Supreme Court in April. Rachel Reeves weighed in last month, warning against an outcome that would make it harder for people to obtain finance to afford a car. The Chancellor said any payouts should be ‘proportionate’.
Close Brothers said the sum set aside yesterday came after ‘a thorough assessment’ based on ‘available information and recent developments’. It added: ‘There remains significant uncertainty as to the outcome of the motor commissions appeals and FCA’s ongoing review so the cost to us could be higher or lower.’. Close Brothers has been boosting its balance sheet ahead of a possible compensation bill, and last September sold its wealth management arm for about £200million.
Shares fell 4.9 per cent, or 17.8p, to 346.2p. They are down by a third since the autumn, but had started to recover in recent weeks. Gary Greenwood, banking analyst at Shore Capital, said the total cost was likely to exceed the £165million put aside. But he added: ‘The mood music has improved notably in recent weeks, meaning that we reduce our forecast for the total cost to £300million.’. The investment group’s previous estimate was £450million.
