FCA-mandated compensation scheme forcing lenders to absorb redress from capital
Change
UK lenders must fund customer compensation from their own capital under the FCA’s car finance redress scheme, with Close Brothers increasing provisions to about £320m.
Why it matters
Capital is now directly consumed by redress liabilities, reducing capacity for new lending and increasing pressure on capital planning across motor finance portfolios.
Implications
- — Treasury and capital planning teams at UK motor finance lenders must reassess capital allocation and lending capacity as redress provisions reduce available capital
- — Banks with motor finance exposure must incorporate compensation liabilities into capital adequacy planning or risk breaching internal thresholds and regulatory expectations
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