Undertaking
On , the Financial Conduct Authority issued a Undertaking to Mercedes-Benz Financial Services UK Limited
Mercedes-Benz Financial Services (UK) Limited
Mercedes-Benz Financial Services (UK) Limited (referred to as “MBFS” or “the firm”) has
committed to making changes to its consumer vehicle ‘Hire Purchase Agreements’ that contain
an excess mileage charge (referred to as the “contract” or the “contracts”) and has given the
Financial Conduct Authority (the FCA) an undertaking under the Consumer Rights Act 2015.
The firm has also voluntarily agreed to provide redress to affected consumers who entered into
contracts since 1 January 2014.
We summarise our concerns and the voluntary action the firm has taken below.
Why did we have concerns?
We were concerned that the excess mileage term was unclear how the consumer’s permitted
mileage would be calculated in the event that the contract was terminated part of the way
through a 12-month period, for example in the event of a voluntary termination by the
consumer. This meant that consumers may not have understood what their permitted mileage
was and the amount of any excess mileage charges that would therefore be applied. In
addition, we were concerned that in practice MBFS had not interpreted the terms in the way
most favourable to consumers.
What has the firm done?
MBFS has:
agreed new contracts entered into from 31 December 2024 will contain an excess
mileage term which will more clearly explain how the excess mileage charge will be
calculated;
agreed not to rely on the term in any of its existing contracts with consumers and has
assured us that where the contract has been voluntarily terminated early it has not
relied on the term since January 2022; and
voluntarily agreed to carry out a redress exercise to identify consumers who have been
affected by the unclear term in contracts entered into since 1 January 2014 and to
provide redress where it is appropriate to do so. To date this exercise has led the firm
to estimate that redress will be paid to approximately 4,700 consumers.
The firm has fully co-operated with us in resolving our concerns.
What does this mean for consumers?
The new term will clearly explain:
what the permitted mileage is so a consumer can work out if excess mileage charges
apply and the amount of those charges, in the event of the contract ending early for
any reason; and
that the total permitted mileage will be calculated on a pro-rata basis, including the
method for the pro-rata calculation (for example on a daily, weekly, monthly or other
basis).
MBFS has voluntarily agreed to refund consumers affected by the unclear term since 1 January
2014. The firm will begin contacting consumers in mid 2024, and expects to contact affected
consumers by the end of December 2024. Consumers who think that they may have been
affected and have not been contacted by MBFS by the end of December 2024 should contact
MBFS.
Undertaking from Mercedes-Benz Financial
Services (UK) Limited to the Financial Conduct
Authority
Mercedes-Benz Financial Services (UK) Limited (referred to throughout as “MBFS” or “the
firm”) undertakes under the Consumer Rights Act 2015 (the CRA) in relation to its consumer
vehicle ‘Hire Purchase Agreement’ contracts which contain a contractual right to charge excess
mileage in the event of early termination (referred to as the “contract” or “contracts”) to:
1. ensure that the contracts, entered into from 31 December 2024, contain an excess
mileage term that shall be drafted in a transparent manner by stating the method for
the calculation of the excess mileage charges and in particular stating whether the pro
rata calculation performed on the basis of permitted mileage is adjusted on a daily,
weekly, monthly or other basis.
and
2. not charge an excess mileage charge in respect of any relevant contract that is
terminated early (including those entered into prior to this undertaking) if the excess
mileage charge term does not comply with the transparency criteria set out in
paragraph 1 above.
Applying the CRA
Section 68(1) of the CRA states that firms are required to “ensure that a written term of a
consumer contract… is transparent.” Under section 64(3) of the CRA, a term is transparent if
“… it is expressed in plain and intelligible language and it is legible.”
MBFS Hire Purchase Agreement
MBFS has committed to making changes in respect of the excess mileage term. The term in
contracts in use from 2020 onwards stated:
“…If the vehicle is returned to us, we will calculate the total mileage (the ‘Total
Mileage’) travelled by the vehicle whilst in your possession (including the distance to
the nominated defleet centre)."
“You will pay us a charge at the rate stated in this agreement, if and to the extent that
the Total Mileage exceeds the total permitted mileage for the vehicle (calculated using
the annual permitted mileage stated in this agreement for each year or part of year
between the start date and the date of return).”
We considered the transparency of the term in light of the CRA and relevant case law. We
were concerned that this term was likely to be considered as lacking sufficient transparency
under the CRA.
In our view, it was unclear from the term what the permitted mileage was if the consumer
returned their vehicle part of the way through a 12-month period, for example in the event of
a voluntary termination. In our view, the average consumer could understand the wording
“…calculated using the annual permitted mileage stated in this agreement for each year or part
of year between the start date and the date of return” as meaning that the entire annual
permitted mileage allowance could apply for part of that year. As a result, we were concerned
that the average consumer was unable to evaluate the economic consequences deriving from
the term, since it was unclear what the permitted mileage would be and whether they would
be charged any excess mileage charges.
We were also concerned with the wording of the excess mileage term used in previous
versions of the consumer vehicle contract. Whilst these versions of the term provided
additional context stating that the calculation was “pro-rated for part years”, we remained
concerned that it was unclear whether the permitted mileage would be pro-rated on a daily,
weekly or monthly basis.
Under Section 69 of the CRA, where a contract term in a consumer contract could have
different meanings then it must be applied in the way that is most favourable to the consumer.
We were concerned that MBFS had not done this.
The firm has agreed to amend the term to make it clear that the permitted mileage will be
calculated and adjusted on a pro-rata basis, setting out the method for the pro-rata calculation
and in particular whether it is adjusted on a daily, weekly, monthly or other basis.
Other information
The firm has been fully cooperative in providing this undertaking.
Undertaking agreed on 25 April 2024 and published on 9 May 2024.
Legal information
As a regulator, we, the Financial Conduct Authority (FCA), can challenge firms using terms that
we view as not being fair or transparent under Part 2 of the Consumer Rights Act 2015 (the
CRA). We review contract terms that we come across in our supervision of firms and those
referred to us by consumers, enforcement bodies and consumer organisations. This has led to
MBFS’s undertaking to replace the term that we consider is likely to lack sufficient
transparency.
The FCA has a duty under Schedule 3 of the CRA to notify the Competition and Markets
Authority (the CMA) of the undertakings we receive. We publish the undertakings on our
website, naming the firm, specifying the term(s) identified, and referring to the part of the
CRA that relates to the fairness and transparency of the term(s).
Even if firms have not given an undertaking or been subject to a court decision, they should
remain alert to undertakings or court decisions concerning other firms as part of their risk
management. These will be of potential value in showing the likely attitude of the courts, the
FCA, the CMA or other regulators to similar terms or terms with a similar effect.
Ultimately only a court can determine the fairness or transparency of a term. As such, we
cannot approve terms as being definitively fair and transparent for the purposes of the CRA; it
is for firms to assess the fairness and transparency of their terms and conditions under the
CRA and in the context of the product or service in question.
It is important to bear in mind that wording that is fair or transparent in one agreement is not
necessarily fair or transparent in another. Where we accept an undertaking given to us by a
firm to revise a term, this means that, on the evidence available at that time, we consider the
term to be improved enough that further regulatory action is not required.
Mercedes-Benz Financial Services (UK) Limited (referred to as “MBFS” or “the firm”) has
committed to making changes to its consumer vehicle ‘Hire Purchase Agreements’ that contain
an excess mileage charge (referred to as the “contract” or the “contracts”) and has given the
Financial Conduct Authority (the FCA) an undertaking under the Consumer Rights Act 2015.
The firm has also voluntarily agreed to provide redress to affected consumers who entered into
contracts since 1 January 2014.
We summarise our concerns and the voluntary action the firm has taken below.
Why did we have concerns?
We were concerned that the excess mileage term was unclear how the consumer’s permitted
mileage would be calculated in the event that the contract was terminated part of the way
through a 12-month period, for example in the event of a voluntary termination by the
consumer. This meant that consumers may not have understood what their permitted mileage
was and the amount of any excess mileage charges that would therefore be applied. In
addition, we were concerned that in practice MBFS had not interpreted the terms in the way
most favourable to consumers.
What has the firm done?
MBFS has:
agreed new contracts entered into from 31 December 2024 will contain an excess
mileage term which will more clearly explain how the excess mileage charge will be
calculated;
agreed not to rely on the term in any of its existing contracts with consumers and has
assured us that where the contract has been voluntarily terminated early it has not
relied on the term since January 2022; and
voluntarily agreed to carry out a redress exercise to identify consumers who have been
affected by the unclear term in contracts entered into since 1 January 2014 and to
provide redress where it is appropriate to do so. To date this exercise has led the firm
to estimate that redress will be paid to approximately 4,700 consumers.
The firm has fully co-operated with us in resolving our concerns.
What does this mean for consumers?
The new term will clearly explain:
what the permitted mileage is so a consumer can work out if excess mileage charges
apply and the amount of those charges, in the event of the contract ending early for
any reason; and
that the total permitted mileage will be calculated on a pro-rata basis, including the
method for the pro-rata calculation (for example on a daily, weekly, monthly or other
basis).
MBFS has voluntarily agreed to refund consumers affected by the unclear term since 1 January
2014. The firm will begin contacting consumers in mid 2024, and expects to contact affected
consumers by the end of December 2024. Consumers who think that they may have been
affected and have not been contacted by MBFS by the end of December 2024 should contact
MBFS.
Undertaking from Mercedes-Benz Financial
Services (UK) Limited to the Financial Conduct
Authority
Mercedes-Benz Financial Services (UK) Limited (referred to throughout as “MBFS” or “the
firm”) undertakes under the Consumer Rights Act 2015 (the CRA) in relation to its consumer
vehicle ‘Hire Purchase Agreement’ contracts which contain a contractual right to charge excess
mileage in the event of early termination (referred to as the “contract” or “contracts”) to:
1. ensure that the contracts, entered into from 31 December 2024, contain an excess
mileage term that shall be drafted in a transparent manner by stating the method for
the calculation of the excess mileage charges and in particular stating whether the pro
rata calculation performed on the basis of permitted mileage is adjusted on a daily,
weekly, monthly or other basis.
and
2. not charge an excess mileage charge in respect of any relevant contract that is
terminated early (including those entered into prior to this undertaking) if the excess
mileage charge term does not comply with the transparency criteria set out in
paragraph 1 above.
Applying the CRA
Section 68(1) of the CRA states that firms are required to “ensure that a written term of a
consumer contract… is transparent.” Under section 64(3) of the CRA, a term is transparent if
“… it is expressed in plain and intelligible language and it is legible.”
MBFS Hire Purchase Agreement
MBFS has committed to making changes in respect of the excess mileage term. The term in
contracts in use from 2020 onwards stated:
“…If the vehicle is returned to us, we will calculate the total mileage (the ‘Total
Mileage’) travelled by the vehicle whilst in your possession (including the distance to
the nominated defleet centre)."
“You will pay us a charge at the rate stated in this agreement, if and to the extent that
the Total Mileage exceeds the total permitted mileage for the vehicle (calculated using
the annual permitted mileage stated in this agreement for each year or part of year
between the start date and the date of return).”
We considered the transparency of the term in light of the CRA and relevant case law. We
were concerned that this term was likely to be considered as lacking sufficient transparency
under the CRA.
In our view, it was unclear from the term what the permitted mileage was if the consumer
returned their vehicle part of the way through a 12-month period, for example in the event of
a voluntary termination. In our view, the average consumer could understand the wording
“…calculated using the annual permitted mileage stated in this agreement for each year or part
of year between the start date and the date of return” as meaning that the entire annual
permitted mileage allowance could apply for part of that year. As a result, we were concerned
that the average consumer was unable to evaluate the economic consequences deriving from
the term, since it was unclear what the permitted mileage would be and whether they would
be charged any excess mileage charges.
We were also concerned with the wording of the excess mileage term used in previous
versions of the consumer vehicle contract. Whilst these versions of the term provided
additional context stating that the calculation was “pro-rated for part years”, we remained
concerned that it was unclear whether the permitted mileage would be pro-rated on a daily,
weekly or monthly basis.
Under Section 69 of the CRA, where a contract term in a consumer contract could have
different meanings then it must be applied in the way that is most favourable to the consumer.
We were concerned that MBFS had not done this.
The firm has agreed to amend the term to make it clear that the permitted mileage will be
calculated and adjusted on a pro-rata basis, setting out the method for the pro-rata calculation
and in particular whether it is adjusted on a daily, weekly, monthly or other basis.
Other information
The firm has been fully cooperative in providing this undertaking.
Undertaking agreed on 25 April 2024 and published on 9 May 2024.
Legal information
As a regulator, we, the Financial Conduct Authority (FCA), can challenge firms using terms that
we view as not being fair or transparent under Part 2 of the Consumer Rights Act 2015 (the
CRA). We review contract terms that we come across in our supervision of firms and those
referred to us by consumers, enforcement bodies and consumer organisations. This has led to
MBFS’s undertaking to replace the term that we consider is likely to lack sufficient
transparency.
The FCA has a duty under Schedule 3 of the CRA to notify the Competition and Markets
Authority (the CMA) of the undertakings we receive. We publish the undertakings on our
website, naming the firm, specifying the term(s) identified, and referring to the part of the
CRA that relates to the fairness and transparency of the term(s).
Even if firms have not given an undertaking or been subject to a court decision, they should
remain alert to undertakings or court decisions concerning other firms as part of their risk
management. These will be of potential value in showing the likely attitude of the courts, the
FCA, the CMA or other regulators to similar terms or terms with a similar effect.
Ultimately only a court can determine the fairness or transparency of a term. As such, we
cannot approve terms as being definitively fair and transparent for the purposes of the CRA; it
is for firms to assess the fairness and transparency of their terms and conditions under the
CRA and in the context of the product or service in question.
It is important to bear in mind that wording that is fair or transparent in one agreement is not
necessarily fair or transparent in another. Where we accept an undertaking given to us by a
firm to revise a term, this means that, on the evidence available at that time, we consider the
term to be improved enough that further regulatory action is not required.