Mercedes-Benz’s UK motor finance unit has plunged into a £365m loss after setting aside hundreds of millions of pounds to cover possible compensation related to the mis-selling of car loans.
Accounts filed for Milton Keynes-based Mercedes-Benz Financial Services UK show the company made a loss of £364.6 million in 2024, compared to a profit of £69.6 million the previous year, after recording additional costs related to improperly disclosed commission arrangements.
The £423.8 million provision is the largest announced by a car manufacturer to date, underlining the growing financial impact of the car finance sector’s claims scandal, which the Financial Conduct Authority estimates could cost the industry around £11 billion.
The FCA said in October that millions of motorists could be entitled to compensation averaging around £700 per arrangement after it found lenders and brokers had failed to properly disclose commission payments on car finance deals dating back to April 2007.
While the regulator has proposed an industry-wide compensation scheme, lenders and financial services have reacted strongly, arguing that the level of compensation is disproportionate. The FCA’s consultation concluded last month, with final rules expected in February or March. Legal action remains possible if companies challenge the result.
Mercedes-Benz announced in October that it had already set aside 422 million euros (£368 million) at group level. The latest UK accounts show a charge of £395m in 2024 alone, on top of the £28.8m previously reserved, bringing the total UK provision to £423.8m.
Mercedes is not the only one to suffer a significant setback. Lloyds Banking Group has set aside £1.95 billion to cover potential redress costs, while BMW Financial Services UK has set aside almost £207 million.
The extent of Mercedes-Benz Financial Services UK’s loss shows how entrenched vehicle finance commissions were throughout the industry and how costly the consequences could become.
As the regulator prepares to finalize its redress framework, this incident is shaping up to be one of the most significant consumer financial scandals in recent UK history, with far-reaching consequences for banks, car manufacturers and borrowers alike.
