BMW Sets Aside Funds Amid Growing Motor Finance Scandal

BMW has made a significant financial provision in response to growing regulatory scrutiny and a recent Court of Appeal ruling that could have widespread implications for the motor finance sector. The provision was disclosed in BMW Financial Services (GB) Limited’s 2023 accounts, filed at Companies House, and highlights the uncertainty the company faces over potential liabilities stemming from past commission practices.

The German car manufacturer’s financial accounts, finalized before the Court of Appeal’s recent ruling, reflect a range of scenarios, including a potential “reactive customer redress scheme” to handle claims from affected customers. The provision, while addressing a variety of outcomes, acknowledges the considerable uncertainty surrounding BMW’s ultimate financial responsibility in the ongoing controversy.

The Court of Appeal’s decision last month has expanded the scope of the issue beyond just discretionary commissions, affecting other commission structures deemed to be “secret” or inadequately disclosed. The ruling, which found lenders liable for undisclosed commissions, has prompted significant concerns within the motor finance industry and raised the bar for transparency in commission arrangements. In response to the ruling, several lenders, including BMW, have temporarily paused their car loan businesses to ensure compliance with new regulatory expectations.

The controversy dates back to 2020, when the Financial Conduct Authority (FCA) banned discretionary commission arrangements, which allow car dealers to determine the size of commissions on car finance deals. Following customer complaints, the FCA expanded its investigation to cover commission practices going back to April 2007, leading to speculation that a redress scheme could be mandated by the regulator.

BMW’s financial provision follows similar moves by other major players in the motor finance sector. In February, Lloyds Banking Group set aside £450 million for potential liabilities related to past commission practices, while FirstRand, the owner of MotoNovo, allocated £127.4 million in September. Investec also disclosed a £30 million provision in May. However, analysts warn that these figures could rise significantly, with some likening the unfolding crisis to the £50 billion payment protection insurance (PPI) compensation scandal.

FirstRand and Close Brothers, two lenders directly affected by the Court of Appeal ruling, are seeking to appeal the decision to the Supreme Court. As the industry braces for further regulatory action, the financial impact of the motor finance commission scandal is expected to be considerable, with potential liabilities in the billions of pounds.