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Close Brothers has said it is almost doubling the amount of cash set aside for a car finance compensation scheme, as it joins rival lenders in challenging the regulator’s plans.
The banking group told investors it was adding around £135 million to its existing £165 million provision.
This means it is expected to face a bill of around £300 million to cover costs related to the issue.
comes after the announcement Lloyds Banking Group Said that an additional £800 million would be needed to fund the scheme – bringing its total provision to £1.95 billion.
Banks are increasing their reserves after the Financial Conduct Authority (FCA) published details of its proposed compensation scheme for drivers mis-sold car loans between 2007 and 2024.
FCA It is said that almost 14 million payments are due on unfair car finance deals, averaging around £700 each.
It calculated that the total bill for the motor finance industry could reach around £11 billion, including the operating costs of running the scheme.
Close Brothers said the £300 million provision was the best estimate of the financial impact, and that it “reflects the greater likelihood that more historical cases, particularly those involving the Discretionary Commission Arrangement (DCA), will be eligible for redress”.
“The group is committed to achieving fair outcomes for customers and providing redress where losses have occurred,” the bank said.
“However, it does not believe that the redress methodology proposed by the FCA appropriately reflects actual customer losses or achieves a proportionate outcome.
“Furthermore, the FCA’s proposed approach to assessing unfairness is not consistent with the legal clarity provided by Supreme Court Judgment in relation to the ‘Johnson’ case, which confirmed that the test for unfairness is highly fact specific and must take into account a wide range of factors.
“The group will continue to engage with the FCA regarding these points.”
The comments match those made by Lloyds on Monday, with the banking giant also raising concerns about the regulator’s calculations of how much consumers lost and whether they should be compensated.
Lloyds said customers could get more than 100% of the commission back.
The FCA proposed that consumers be compensated for the above-average payments and commissions paid, as well as interest, according to its estimates.
This takes into account the difference in interest rate charged on loans with DCA compared to loans with flat-fee arrangements.
It believes that 44% of all agreements made between 2007 and 2024 were unfair and therefore eligible for compensation.
“We believe our plan is the best way to resolve the issue for both consumers and firms, and alternatives will be more expensive and take longer,” FCA boss Nikhil Rathi said last week.
Close Brothers’ share price was down nearly 3% on Tuesday morning.