Close Brothers has increased its provisions for potential compensation claims from historic motor finance commissions to £300m.

The bank had previously set aside £165m for redress scenarios but has today added an additional £135m, citing the likelihood that more historical cases would qualify for redress.

Close Brothers is the second bank in as many days to raise its compensation pot for potential motor finance redress claims, after Lloyds yesterday set aside an extra £800m to take its total provisions to £1.95bn.

The moves by both come after the Financial Conduct Authority (FCA) published a consultation last week on its proposed industry-wide redress scheme in relation to it investigation into motor finance commissions.

Historic motor finance discretionary commission arrangements (DCAs) have been under review by the FCA since January last year. The regulator’s 2021 ban on DCAs had removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance. However, a high number of complaints from customers to motor finance firms followed, claiming compensation for commission arrangements prior to this ban.

Close Brothers said its total £300m provision, which includes both redress and certain operational costs, represents the group’s “current best estimate” based on all available information at this stage.

“While uncertainty in relation to the outcome of the consultation remains, the group has updated its range of probability-weighted scenarios resulting in an additional expected charge of around £135m, increasing the total provision to approximately £300m,” Close Brothers said in a statement.

“This reflects a greater likelihood that more historical cases, particularly those involving DCAs, would qualify for redress, as well as the possibility of the proposed redress methodology resulting in higher compensation levels than reflected in some of the group’s previous range of scenarios.”

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