Close Brothers and FirstRand Increase Motor Finance Provisions Following Court Rulings

Close Brothers and FirstRand Bank, which operates in the UK through MotoNovo Finance, have increased financial provisions linked to historic motor finance commission arrangements as legal and regulatory pressure continues across the sector.

Close Brothers has set aside approximately £300 million to cover potential compensation costs. The provision reflects uncertainty following court rulings on commission disclosure and the Financial Conduct Authority’s ongoing review into discretionary commission arrangements used before 28 January 2021.

FirstRand, through MotoNovo Finance, has also confirmed exposure within its UK motor finance portfolio, as part of wider industry provisions that now exceed £2 billion across major lenders.

These developments place both firms among the lenders most directly affected by recent legal decisions.

The Court of Appeal Ruling

In 2024, the Court of Appeal delivered judgments in cases involving undisclosed motor finance commission. The court examined whether failing to disclose commission arrangements to customers could create an unfair relationship under the Consumer Credit Act 1974.

The rulings raised questions about transparency, where dealers received commission linked to the interest rate charged.

Before the FCA banned discretionary commission in 2021, dealers could adjust customer interest rates within an agreed range. The higher the rate, the higher the commission they earned.

The FCA later concluded that this structure created a risk of unfair outcomes and banned the practice from 28 January 2021.

The Court of Appeal’s decisions increased legal uncertainty for lenders whose historic agreements relied on these models. As a result, firms including Close Brothers reassessed potential financial exposure.

Scale of Potential Exposure

The FCA estimates that around 14 million motor finance agreements were written between April 2007 and January 2021 where commission disclosure may be relevant. That represents approximately 40 to 45 percent of motor finance agreements during that period.

Motor finance remains one of the largest UK consumer credit markets. In recent years, more than 80 percent of new cars have been purchased using finance.

Across the sector, reported provisions now include:

• Lloyds Banking Group – approximately £1.95 billion
• Barclays – £325 million
• Santander UK – £295 million
• Close Brothers – around £300 million
• Bank of Ireland UK – roughly £350 million

Combined, these exceed £2 billion, with some market analysts suggesting overall exposure across the industry could reach £8 billion or more, depending on final redress rules and participation levels.

Provisions are precautionary accounting measures. They do not confirm that all agreements were mis-sold.

Why Close Brothers Faces Particular Scrutiny

Unlike diversified high street banks, Close Brothers has a significant concentration in specialist lending, including motor finance.

Because of this concentration, any industry-wide redress scheme may have a proportionally larger impact on its balance sheet compared to larger banking groups.

Investor reaction following the 2024 Court of Appeal ruling reflected concerns about potential liabilities and future profitability.

FirstRand, through MotoNovo Finance, is also exposed due to its historic dealership network and commission structures.

FCA Redress Scheme Under Consultation

Alongside court developments, the FCA is consulting on a possible industry-wide redress scheme.

Under early consultation discussions, average redress could be around £700 per agreement, although actual compensation would depend on individual financial impact.

If introduced, a formal scheme may require lenders to:

• Identify affected agreements
• Assess whether discretionary commission influenced interest rates
• Contact customers directly
• Calculate and issue compensation where appropriate

A final decision from the FCA is expected in 2026.

What This Means for Close Brothers and MotoNovo Customers

If you took out a Personal Contract Purchase or Hire Purchase agreement funded by Close Brothers or MotoNovo before 28 January 2021, your agreement may fall within the FCA review period.

Key considerations include:

• Whether discretionary commission was applied
• Whether the commission structure was clearly disclosed
• Whether your interest rate was influenced by dealer incentives
• Whether the overall relationship could be considered unfair

Not every agreement will qualify for compensation. Each case depends on documentation and disclosure at the time.

You do not need to use a claims management company to complain. You can contact your lender directly free of charge.

If you are unsure whether your agreement involved discretionary commission, you can request your finance documents from your lender at no cost.

You can also ask Mis-Sold Expert to review your agreement details and explain how commission may have been applied. This does not guarantee compensation. You remain free to complain to your lender yourself or seek independent advice.

If you receive a final response and are not satisfied, you can refer your complaint to the Financial Ombudsman Service within six months.

Market Outlook and The Future For Lenders

With 14 million agreements potentially in scope and sector-wide provisions exceeding £2 billion, the motor finance commission issue remains one of the most significant conduct challenges currently facing UK lenders.

For specialist lenders such as Close Brothers and MotoNovo, the final FCA decision in 2026 will be particularly important in determining financial impact and operational requirements.