Auto finance crisis sees Mercedes-Benz Financial Services UK post loss

The auto finance mis-selling crisis has hit Mercedes-Benz’s UK captive hard, with the lender reporting a £364.6m loss for the year ended 31 December 2024, compared with a £69.7m profit the previous year, which it says is down to a substantially increased provision of £395m for potential claims under the FCA’s yet to be launched redress scheme.

According to the annual report and financial statements for Mercedes-Benz Financial Services UK, the main driver for the substantial decrease in profits was “the inclusion of additional provision charges during the year for the motor finance commission claims amounting to £394,990,000.”

Added to the £28.8m Mercedes-Benz FS reported setting aside in 2023, this means its total provision for any compensation payments now stands at £423.8m, the largest so far disclosed by an auto captive lender.

According to its accounts, this provision includes the cost of making redress payments, related administration costs, and costs associated with litigation activity. However, these also note “considerable uncertainty” as to the potential outcomes.

The FCA’s consultation on the shape of its planned redress scheme for auto finance mis-selling relating to undisclosed commission and unfair treatment of consumers closed on December 12. The regulator has said it will be setting out its findings and details of the scheme in February or March of this year.

The FCA has argued that its redress scheme is designed to free up the logjam of legal cases at county court level by creating a template for compensation, which it has suggested will be typically around £700 for each claim.

However, the regulator has come under fire from motor finance lenders over its proposal to extend the scheme back to 2007, with many suggesting this will make data collection and redress very complex and expensive.