Close Brothers, a British financial institution, has allocated up to £165 million to address potential motor finance claims. This move comes in response to an October 2024 ruling by the UK’s Court of Appeal, which determined that the motor finance industry was liable for undisclosed commissions in past sales practices. This provision is the first time Close Brothers has quantified the financial impact of the ruling.

The Court of Appeal’s decision centered on the payment of “hidden” commissions to car dealers by lenders, without the informed consent of consumers. This practice was deemed unlawful, leading to significant potential liabilities for lenders involved in such arrangements.

In response to the ruling, Close Brothers has taken measures to strengthen its financial position. The company has limited lending activities, disposed of its wealth management business, and implemented cost-cutting strategies. These actions aim to bolster the company’s capital ratio, with expectations to reach approximately 13% by the end of the year, maintaining a buffer above the regulatory requirement of 9.7%.

The broader motor finance industry faces substantial financial exposure due to this ruling. Estimates suggest that compensation costs could reach up to £30 billion, potentially making it one of the UK’s most significant consumer banking scandals.

Close Brothers, along with other affected lenders, has been granted permission to appeal the decision. The Supreme Court is expected to hear the case before April 16, 2025. The outcome of this appeal will be pivotal in determining the final financial obligations of the involved parties.

In the interim, the Financial Conduct Authority (FCA) has advised firms to review their commission disclosure practices to ensure compliance with legal requirements and to prevent further consumer detriment.