BMW Australia finance arm slammed

One of BMW's most senior executives has admitted the company faces serious "challenges" with its Australian finance arm, which was this week reportedly forced to pay $72 million for misleading local customers.

Speaking to motoring.com.au at the announcement of its future electrification strategy in Germany this week, BMW's global sales and marketing director Dr Ian Robertson said the century-old Bavarian brand's Australian finance operation will be investigated.

"At the moment we have a few challenges in Australia with our financial services operation. We will look at it," he said.

"There is a lot of work to do there. We are not where we would expect to be."

BMW Australia Finance has agreed to a "remediation program" with the Australian Securities and Investments Commission (ASIC), which commenced on December 6 and will remain open until December 31, 2017.

The remediation program, in which customers are required to register their interest, is available to all BMW Australia Finance (including BMW, MINI and Alphera Financial Services) customers who entered into a consumer finance contract from January 1, 2011 to August 31, 2016.

According to a report by Fairfax Media this week, BMW Australia Finance will write off $50 million in loans that the company should never have made, make $14.6m in direct payments to people who were ripped off or misled and grant $7.5m in interest rate reductions on current loan contracts.

The Fairfax report said at least 15,000 customers were identified by accounting firm Ernst & Young, which was appointed by ASIC to conduct a forensic audit of the company's books, as having suffered hardship after borrowing to buy BMW vehicles between 2011 and August this year.

"We recently agreed with ASIC, the Australian regulatory body, that due to its concerns about our conduct in connection with responsible lending that may have caused some customers financial hardship, we will undertake a remediation program," said BMW Australia on its public website.

"We have established a free customer remediation program that has been agreed with ASIC and will be overseen by an independent expert.

"Within eight weeks of the start of the registration period, we will proactively contact customers who have already shown signs of financial hardship and those who have registered.

"The remediation program is designed to compensate customers that have suffered financial hardship as a result of our lending practices.

"If you register with the program we will contact you to discuss your personal situation, assess any hardship you may have suffered as a result of our lending practices [and] offer you a fair compensation amount."

According to Fairfax, BMW's agreement with ASIC follows the threat of a class action from disgruntled borrowers, some of which were left owing more than their cars were worth as a result of a "sales-driven culture" that failed to comply credit law requirements.

It said that of the 100 BMW customer files that Ernst & Young considered questionable, it found 98 per cent breached the consumer credit code, and that BMW had underestimated people's monthly spending when assessing them for a loan in the vast majority of these cases.

Fairfax said the accounting firm will conduct a "live review" of a sample of new loans that BMW is writing, as part of an appointment that has been extended until the end of 2017.

BMW Australia's captive finance arm reportedly loaned $27,000 to a single mother of 10 who was in casual employment and had negative disposable income, $23,300 to a 21-year-old refugee who had been employed for just one month and nearly $50,000 – almost twice the value of the car -- to a 76-year-old man based on earning projections rather than real income.

Affected BMW Finance customers can call 1800 448 225 for further details and customers who disagree with the outcome of the remediation program can contact the Credit and Investment Ombudsman via www.cio.org.au, info@cio.org.au or 1800 138 422.