BMW Seeks Urgent Talks Over Motor Finance Scandal Bill as Compensation Costs Mount

Executives at BMW are seeking a meeting with Chancellor Rachel Reeves amid mounting controversy over the car loan mis selling scandal and the sweeping compensation programme proposed by the Financial Conduct Authority FCA. The carmaker faces a potential hit of more than £200 million from the mis selling affair and is keen to discuss the implications of an industry wide redress scheme that could reshape the landscape for motor finance providers.

The regulator has estimated that some 44 per cent of all UK motor finance agreements between April 2007 and November last year around 14.2 million deals could be deemed unfair under the programme. The scheme is expected to result in total compensation of approximately £8.2 billion for consumers with an additional £2.8 billion in operational costs for lenders according to the FCA consultation.

Pushback from lenders is intensifying as the Finance and Leasing Association asserts that the scale of potentially unfair deals is vastly overstated. Companies such as FirstRand the South African parent of British motor finance player MotoNovo argue that the FCA proposals risk being disproportionate and threaten industry stability. Banks including Lloyds and Santander as well as numerous carmakers are preparing for significant financial liabilities with Lloyds already earmarking £1.15 billion and warning of further provisions to come.

The scandal centres on commissions paid by finance providers to car dealers arrangements that were often not properly disclosed to customers. Such practices fell foul of existing law and regulations exposing banks and finance arms to hefty compensation claims. BMWs British finance subsidiary has provisioned almost £207 million while other manufacturers such as Renault have set aside tens of millions to cover potential redress.

Senior BMW leaders are also seeking to broach wider topics during talks with the Chancellor including the broader environment for electric vehicles in the UK and ongoing automotive investments. Operating in the shadow of a Supreme Court judgment that could have seen compensation soar to £44 billion before a lender friendly outcome diminished that risk, the Treasury is said to be monitoring the issue closely.

The government maintains that access to affordable and manageable motor finance remains crucial for UK consumers. Resolution that is efficient and provides certainty for both consumers and firms is considered vital as the industry contends with the largest compensation scheme in UK automotive history.