Key Takeaways:
Close Brothers has opted not to pursue a legal challenge against the UK Financial Conduct Authority's (FCA) redress scheme for mis-sold car finance, signaling an acceptance of liability that could cost the lender up to £200 million. The decision, reported by Sky News on April 25, 2026, removes a key uncertainty for the bank but prepares it for a significant financial impact.
The move comes after the FCA launched a review into historical discretionary commission arrangements in the motor finance market, a probe that could affect a significant portion of the UK's major lenders. "Close Brothers have decided not to launch a judicial review of the FCA's jurisdiction," Sky News reported, citing sources.
While the bank's shares have been under pressure, this decision provides clarity on its strategy for handling the expected compensation claims. The total cost for the entire industry is estimated by analysts to be as high as £13 billion, with other major players like Lloyds Banking Group and Santander also making provisions for potential payouts. Santander has already begun contacting customers who may be eligible for compensation.
The decision by Close Brothers is likely to be seen as a bellwether for the rest of the UK car finance sector. By choosing not to fight the FCA's process, the bank may accelerate the timeline for compensation across the industry, putting pressure on other lenders to finalize their own provision amounts and begin customer redress. The FCA is expected to outline the next steps in the redress process by the end of September.
The FCA's investigation targets discretionary commissions that were common practice before being banned in 2021. These arrangements allowed car dealers to inflate interest rates for customers to increase their own commission, without the customer's knowledge. The regulator's review has sent ripples through the banking sector, with investors trying to price in the total potential liability.
Lloyds Banking Group, the UK's largest car finance provider, has set aside a provision of £450 million, while the total exposure for the market remains a key question for investors. The FCA's findings, expected later this year, will be critical in determining the final bill for UK lenders and the level of compensation customers can expect.
This article is for informational purposes only and does not constitute investment advice.
