BMW Sets Aside Over £200 Million Amid Car Finance MisSelling Scandal Fallout

BMW’s UK motor finance arm has dramatically increased the amount earmarked for potential compensation payouts as the ripples from the car finance mis-selling scandal continue to reverberate through the financial sector. The German carmaker’s British finance division has now set aside nearly £207 million, an uptick from £70.3 million previously, to cover the cost of customer claims linked to so-called discretionary commissions on car loans.

The scandal centres on undisclosed commissions paid by lenders to car dealers for arranging finance agreements. Discretionary commission arrangements, now banned by the Financial Conduct Authority (FCA) since January 2021, allowed dealers to set interest rates themselves and benefit from higher commissions when customers paid more, presenting a clear conflict of interest. The FCA’s investigation, which stretches back to 2007, sent shockwaves through the industry and has drawn comparisons to the payment protection insurance (PPI) compensation crisis.

While a recent Supreme Court ruling predominantly favoured the industry’s position in a crucial test case over historical loan arrangements, the FCA has since warned that its forthcoming redress scheme will still result in collective costs for motor finance providers estimated between £9 billion and £18 billion. Millions of drivers are anticipated to receive payouts totalling hundreds of pounds per person, as lenders including Lloyds Banking Group, Santander UK, and the finance arms of major manufacturers brace for the financial impact.

BMW’s latest accounts, which were signed off before the FCA clarified its redress requirements, reflect substantial uncertainty regarding the ultimate bill. The company highlighted that a 5 per cent increase in the rate of successful customer claims would require an additional £31 million to be set aside, underlining the sheer scale of potential liabilities. The provision covers not just redress payments but also legal and administrative expenses tied to the ongoing crisis.

The FCA is due to launch a consultation on the redress scheme shortly, with its chief executive expressing an ambition to address a “critical mass” of customer complaints by 2026. As the sector braces for the regulator’s next steps, financial institutions are preparing contingency measures in anticipation of further claims and regulatory directives on compensation.

A spokesperson for BMW declined to comment beyond what is stated in the company accounts. The unfolding situation serves as a reminder to lenders and brokers alike of the imperative to ensure clarity, fairness, and regulatory compliance in all aspects of consumer finance.