BMW’s UK motor finance arm has dramatically increased the amount it has set aside to cover potential compensation for mis-sold car loans, underlining the mounting cost of the scandal for lenders, the finance press has reported.
In accounts filed at Companies House, BMW Financial Services said it had “set aside a provision worth £206.9 million by the end of 2024 to cover historic motor commission claims,” compared with £70.3 million a year earlier, according to reports by The Times and The Independent.
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The disclosure comes as banks and carmakers’ finance divisions brace for an industry-wide redress scheme that the Financial Conduct Authority (FCA) estimates could cost between £9 billion and £18 billion. Millions of drivers are expected to be eligible for payouts worth hundreds of pounds each.
The FCA is consulting on a plan to compensate consumers who took out car loans between 2007 and 2020, amid evidence that many lenders and brokers failed to properly disclose commissions paid to dealers. Some of these were so-called discretionary commission arrangements (or DCAs), banned in 2021, which allowed dealers to increase their own commissions by charging customers higher interest rates.
BMW said its provision covers “redress payments, administration costs and legal costs” and acknowledged there is still “considerable uncertainty” over the ultimate bill. It warned that outcomes may be “materially less than or greater” than the sum it has reserved, adding that a five per cent increase in payouts would require an additional £31 million.
The company’s 2024 accounts were signed off before last month’s Supreme Court ruling, the The Times said.
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By GlobalDataThe court’s decision largely sided with the industry and helped avoid a worst-case scenario for lenders. Even so, the FCA has said it wants a “critical mass” of commission complaints dealt with by next year, signalling that the sector will still face significant costs.
BMW declined to comment beyond the figures disclosed in its accounts, The Times and The Independent said.
