Mercedes-Benz Financial Services UK posts £365m loss after car loan scandal provision

The UK motor finance arm of Mercedes-Benz has plunged into a £365 million loss after setting aside hundreds of millions of pounds to cover potential compensation linked to the mis-selling of car loans.

Accounts filed for Mercedes-Benz Financial Services UK, based in Milton Keynes, show the business swung to a £364.6 million loss in 2024, compared with a £69.6 million profit the previous year, after booking additional charges related to improperly disclosed commission arrangements.

The provision of £423.8 million is the largest disclosed so far by any car manufacturer, underlining the growing financial impact of the motor finance redress scandal, which 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 about £700 per agreement, after finding that lenders and brokers failed to properly disclose commission payments on car finance deals stretching back to April 2007.

While the regulator has proposed a sector-wide redress scheme, lenders and finance providers have mounted a fierce backlash, arguing that the scale of compensation is disproportionate. The FCA’s consultation closed last month, with final rules expected in February or March. Legal action remains possible if firms challenge the outcome.

Mercedes-Benz revealed in October that it had already set aside €422 million (£368 million) at group level. The latest UK accounts show a £395 million charge taken in 2024 alone, on top of £28.8 million previously reserved, bringing the total UK provision to £423.8 million.

Mercedes is not alone in facing a substantial hit. Lloyds Banking Group has earmarked £1.95 billion to cover potential redress costs, while BMW Financial Services UK has set aside nearly £207 million.

The scale of Mercedes-Benz Financial Services UK’s loss highlights how deeply embedded motor finance commissions were across the industry, and how costly the fallout may yet become.

As the regulator prepares to finalise its redress framework, the episode is shaping up as one of the most significant consumer finance scandals in recent UK history, with far-reaching consequences for banks, carmakers and borrowers alike.