BMW sets aside £70m for possible car finance commission payouts

The mounting scandal over motor finance commissions has forced the British car loans division of BMW to set aside more than £70 million to cover the cost of potentially compensating customers.
The provision by the German car giant takes the total amount set aside by lenders bracing themselves for the fallout from the crisis to almost £680 million, according to analysis by The Times.
Most firms have yet to make provisions for the possible hit they may face and City analysts believe the industry’s final bill could total billions of pounds.
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Estimates for potential redress have jumped after a judgment by the Court of Appeal last month significantly widened the scope of the problem facing the industry. Some have compared it to the £50 billion payment protection insurance compensation scandal.
The move by BMW was disclosed in the latest accounts filed at Companies House by BMW Financial Services (GB) Limited, in which the lending arm of the car company said there was “considerable uncertainty” about its ultimate liability. Its accounts were finalised before last month’s court ruling.
Commissions paid by motor finance providers to car dealers or credit brokers have been in the spotlight since 2020, when the Financial Conduct Authority said it would ban discretionary commission arrangements from early 2021.
However, subsequent complaints and claims brought in county courts over the issue prompted the regulator to announce a wide-ranging inquiry in January into historic discretionary commissions in deals struck as far back as April 2007. That fuelled speculation that the authority would force lenders to pay redress.
Lloyds Banking Group, a big motor finance player, set aside £450 million in February to cover potential compensation and the costs of the authority’s inquiry, although analysts believe its provision could increase significantly.
In May, Investec disclosed a £30 million provision and in September, FirstRand, the South African owner of the British car loans business MotoNovo, revealed that it had set aside £127.4 million. Other lenders that have exposure but have yet to disclose provision include Close Brothers and Santander UK.
BMW Financial Services (GB)’s accounts for 2023, which were signed off in June and filed in late September, showed its £70.3 million provision was based on a range of scenarios, including one where the company undertook “a reactive customer redress scheme”.
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A spokeswoman did not comment beyond the accounts. Analysis of filings by The Times suggests it is the first motor finance arm of a major car manufacturer to disclose a figure for a specific provision for the commission controversy.
Last month’s court ruling, which was being closely watched by the Financial Conduct Authority, broadens the issue beyond discretionary commissions to all commissions that were either “secret” or only partially disclosed to consumers.
The court set a much higher bar for disclosure than regulations had previously stipulated and found lenders liable for the repayment of commissions that did not meet these standards. It immediately caused turmoil throughout the motor finance industry, with many lenders, including BMW, temporarily pausing their car loans businesses until they had ensured they were compliant with the ruling.
FirstRand and Close Brothers, the lenders that were the subject of the ruling, intend to appeal to the Supreme Court.