Close Brothers facing £33m bill for early settlement claims

Close Brothers, which has reported a sharp fall in profits, has left its provision for motor finance mis-selling claims unchanged following the Supreme Court’s dismissal of the Hopcraft claim, but has hit another compensation hurdle and is setting aside an additional £33m for separate remediation relating to early settlement issues.

The lender’s preliminary results for the year ended 31 July 2025, which were delayed by a week as auditors PwC requested additional time to prepare the figures, show a loss before tax of £122.4m, compared to a profit before tax of  £132.7m the previous year.

Published in the wake of the Supreme Court case, Close Brothers noted that it had “successfully overturned the Court of Appeal’s judgment in respect of the Hopcraft case.”

As a result, the provision charge in respect of motor finance commissions recognised in the income statement at the half year of £165m “has been reassessed in light of all available information and recent developments and remains unchanged,” the lender said.

However, Close Brothers also revealed it is “implementing a proactive customer remediation programme in motor finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans”.

This came to light as a result of the lender’s review of business practices in the wake of the Financial Conduct Authority (FCA) review of discretionary commission arrangements and the various legal challenges, and has resulted in a separate provision of £33m in the 2025 financial year.

Close Brothers said it “is fully committed to ensuring that affected customers are appropriately compensated and expects to contact customers in early 2026”.

“Whilst some of these actions have an upfront financial impact on the group, they provide the foundation for the next stage of our journey: driving efficiency and capturing growth.”

FCA redress scheme

On the issue of mis-selling claims relating to commission payments, Morgan stated: “We welcomed the positive outcome of the Supreme Court judgment in August 2025, which provided much-needed clarity to the industry, and now await the outcome of the FCA consultation on the design and scope of an industry-wide redress scheme.

However, Close Brothers cautioned that “until the FCA confirms the design and scope of that scheme, there remains uncertainty as to the range of outcomes, and the financial impact to the group.”

As well as the £165m set aside, the group incurred complaints handling and other operational and legal costs amounting to £18.7m and expenses related to professional and advisory fees of £10.3m, which it described as “temporary expenses expected to diminish once the uncertainties in relation to motor finance commissions are resolved.”

The preliminary results also noted that: “All relevant new business processes now include updated documentation to ensure customers are informed about broker relationships and commission amounts before signing credit agreements. Additionally, measures are in place to verify that credit brokers comply with these requirements.”

Close Brothers said the motor finance business has seen strong growth in new business flows in the fourth quarter, alongside increased satisfaction metrics from dealer partners, with good performance in Ireland following the acquisition of Bluestone Motor Finance DAC in October 2023.

Gary Greenwood, an analyst at Shore Capital, called the lender’s results “very messy”, while Benjamin Toms at RBC Capital Markets said it was “difficult to distinguish the flowers from the weeds”.

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