BMW sets aside £70m for potential motor finance commission payouts as industry braces for billions

BMW sets aside £70m for potential motor finance commission payouts as industry braces for billions

BMW’s UK car finance division has earmarked more than £70 million to address potential customer compensation claims over controversial motor finance commissions, adding to the nearly £680 million set aside by lenders as the industry braces for mounting liabilities.

The German car manufacturer’s provision is part of a wider response to recent regulatory scrutiny and a Court of Appeal ruling that could significantly impact the sector.

The provision was disclosed in BMW Financial Services (GB) Limited’s 2023 accounts, filed at Companies House, which noted “considerable uncertainty” about BMW’s ultimate liability. The accounts, finalised before the recent court decision, reflect a range of possible scenarios, including a “reactive customer redress scheme” to manage potential claims.

The Court of Appeal’s decision last month has broadened the issue, affecting not only discretionary commissions but also other commission structures deemed “secret” or insufficiently disclosed. This ruling raised the bar for transparency and found lenders liable for undisclosed commissions, creating waves across the motor finance industry. In response, some lenders, including BMW, have temporarily paused their car loans businesses to ensure compliance.

The scandal traces back to 2020 when the Financial Conduct Authority (FCA) banned discretionary commission arrangements. However, subsequent customer complaints led to a broader inquiry into past commission practices going back to April 2007, with speculation that redress could be mandated by the regulator.

Other major players have also made provisions. Lloyds Banking Group, a prominent motor finance provider, allocated £450 million in February, while FirstRand, owner of MotoNovo, set aside £127.4 million in September. Investec disclosed a £30 million provision in May. Yet analysts predict these figures could rise significantly, with some comparing the unfolding crisis to the £50 billion payment protection insurance (PPI) compensation scandal.

FirstRand and Close Brothers, both directly affected by last month’s ruling, are seeking an appeal to the Supreme Court. As the industry awaits further regulatory action, the financial impact of this motor finance commission controversy is expected to be significant, with potential liabilities in the billions.