Close Brothers has restarted its motor finance lending practice a month after a landmark court ruling over the legality of its business.
On 25 October, a court ruled that a broker could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent to the payment, sending the entire motor finance sector in a spin.
The massive fines that companies are set to pay out have left them panicking, with RBC forecasting as high as a £640m financial hit to Close Brothers, almost double its stock market value.
After the ruling, the lender temporarily paused UK motor finance lending, but said today in a trading update that it had “restarted a significant portion of this business and expect full resumption in the very near future”.
In response to the ruling, Close Brothers said it had updated its documentation and processes “to ensure disclosure of commission amounts on finance agreements and obtain full customer consent for all necessary issues, including credit broker commissions, before customers enter into credit agreements”.
“We have also implemented necessary measures to verify credit brokers’ compliance with these new requirements,” it added.
“While the potential future applicability of the judgment to other intermediated lending businesses remains unclear, we are reviewing documentation and processes and continue to collaborate with brokers and other intermediaries to update disclosures and procedures where appropriate.”
Close Brothers shares slump in 2024
Shares in Close Brothers are trading at their lowest level in three decades as the decision has made it more likely that the Financial Conduct Authority will implement a multibillion-pound redress scheme in its review into the now-banned discretionary commission arrangements.
The lender’s shares are down more than 70 per cent since the start of the year.
Throughout the rest of its business, Close Brothers said its banking loan book had increased 0.6 per cent over the last three months to £10.2bn, thanks to continued demand from customers.
The group’s asset management arm, which is due to be sold to Oaktree Capital Management early next year, saw assets increased slightly to £20.6bn.
“We are confident in our underlying business, supported by our strong balance sheet and liquidity position, and remain committed to driving it forward,” said group finance director Mike Morgan.
“Notwithstanding the significant uncertainty resulting from the FCA’s review of historical motor finance commission arrangements and the recent Court of Appeal judgment, our focus is on protecting our valuable franchise.”