What Close Brothers’ £320 Million Provision Tells Us About the Road Ahead
Close Brothers’ £320m motor finance provision signals why mis-selling compensation remains likely, despite judicial review delays to the FCA redress scheme.
The motor finance mis-selling saga has entered a new and more complex phase.
The Financial Conduct Authority’s industry-wide redress scheme, designed to return £7.5 billion to consumers affected by undisclosed commission arrangements, is now subject to judicial review proceedings brought by four separate parties, namely Mercedes-Benz Financial Services, Volkswagen Financial Services, Crédit Agricole Auto Finance, and a consumer advocacy group called Consumer Voice.
A court determination is not expected before mid-November 2026, and the mass scheme is unlikely to become operative before then.
Against that backdrop, Close Brothers’ decision to raise its total motor finance provision to £320 million warrants careful attention. Provisions of this magnitude are not made lightly. They represent a board-level assessment of probable liability, subjected to audit scrutiny, and disclosed to the market under regulatory obligations.
When a lender absorbs pre-tax operating losses of £65.5 million, eliminates nearly a quarter of its workforce, and simultaneously builds a nine-figure reserve, it is communicating something unambiguous about its expectations: the liability is real and the outflow is a matter of when, not if.
What the judicial review actually contests
It is worth being precise about what the current legal proceedings do and do not put in dispute. The Supreme Court has already affirmed, in its ruling on Johnson v FirstRand Bank, that undisclosed commission arrangements in motor finance agreements created unfair relationships under section 140A of the Consumer Credit Act 1974. The underlying wrongdoing is settled law.
What remains contested is the FCA’s chosen mechanism for delivering redress at scale. The challengers take issue with the regulator’s statutory authority to impose a mandatory industry-wide scheme under section 404 of the Financial Services and Markets Act 2000, the retrospective reach of the programme to agreements predating the FCA’s assumption of consumer credit regulation in 2014, and aspects of the methodology used to calculate compensation. These are substantive legal questions, but they are questions about process and scope, not about whether consumers are owed anything.
Implications for lenders and consumers
For lenders, the judicial review creates a period of operational uncertainty but does not suspend the underlying obligation to prepare. The FCA has made clear that firms should continue readying their systems and governance arrangements for implementation, and that senior managers carry personal accountability for that process regardless of the litigation outcome.
For consumers, the practical position is more straightforward than the procedural complexity might suggest. The legal challenge does not extinguish individual rights. Consumers retain the ability to complain directly to their lender and, where unsatisfied, to refer their case to the Financial Ombudsman Service. The judicial review affects the timing and architecture of the mass scheme, not the availability of redress through existing channels.
What Close Brothers signals for the broader market
Close Brothers is among the more transparent participants in a sector-wide reckoning that has been building since the Court of Appeal’s ruling in late 2024. Its willingness to absorb losses, restructure aggressively, and disclose a provision of this scale ahead of any formal scheme commencement reflects a calculation that prolonged resistance carries greater financial and reputational cost than orderly preparation.
Other lenders watching the judicial review proceedings will draw their own conclusions. But the trajectory is difficult to dispute. The compensation will be paid. The scheme will either survive judicial scrutiny in substantially its current form, be modified in response to the court’s findings, or be replaced by an alternative mechanism that achieves the same end. Close Brothers’ balance sheet suggests its board has already reached that conclusion.
