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Specialist UK bank Close Brothers has nearly doubled the amount it has set aside to cover payouts from the car finance mis-selling scandal to £300mn, following a ruling from the UK financial regulator.
Close Brothers said on Tuesday that it expected to take an additional charge of £135mn, in addition to an initial provision of £165mn.
It noted that the final cost could be “materially higher or lower depending on the outcome of the consultation and any further legal, regulatory or industry developments”.
The extra provision followed a ruling from the Financial Authority Conduct last week that the mis-selling scandal would cost banks a total of £11bn.
The projected compensation was reduced by a Supreme Court decision to overturn much of an earlier Court of Appeal ruling that had threatened to saddle lenders with compensation costs of up to £44bn.
Close Brothers said the increased provision reflected the “greater likelihood” that more historical cases would qualify for compensation following the FCA’s ruling, as well as “the possibility” of higher compensation levels than it had expected.
The FTSE 250 group also criticised the regulator’s methodology, and said it “does not believe the redress methodology proposed by the FCA appropriately reflects actual customer loss or achieves a proportionate outcome”.
The scandal stems from commissions paid by lenders to motor dealerships as part of millions of vehicle sales over many years, which the regulator and courts have said provided an incentive for higher interest rates and were insufficiently disclosed to consumers.
On Monday, Lloyds Banking Group said it was preparing for a near-£2bn hit from the scandal.
