Mercedes-Benz’s finance arm has been slammed by the UK’s banks ombudsman for “very poor” handling of a motor finance dispute where a consumer’s car showed “serious” electrical faults. The financial services arm of the German carmaker has been ordered to refund with interest 50 per cent of all monthly payments
Samuel Norman
Monday 29 June 2026 2:50 am | Updated: Friday 26 June 2026 7:16 pm
Mercedes-Benz’s finance arm has been slammed by the UK’s banks ombudsman for “very poor” handling of a motor finance dispute where a consumer’s car showed “serious” electrical faults.
The financial services arm of the German carmaker has been ordered to refund with interest 50 per cent of all monthly payments made by a customer after it rejected return requests despite the customer flagging major electrical difficulties.
In February 2025, Mercedes-Benz Financial Services (MBFS) refused to accept a return request after the user reported critical issues with the brake assist and battery. The firm had argued the customer was not entitled to return the car after a manufacturer-approved garage had resolved the issue by “carrying out a software update”.
Months later in May, the customer made another failed attempt after problems persisted.
The Financial Ombudsman Service (FOS) branded a claim by MBFS that the software updates did not equate to a repair attempt under the Consumer Rights Act (CRA) as “misguided”.
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“[There] were quite significant electrical problems with the car that potentially impacted its safety.”
MBFS claimed in the period following that it could not help because it was over six months since the car was acquired. The FOS blasted the firm for having “fundamentally failed to engage appropriately with the issues and its potential liability under the CRA”.
Mercedes blasted for ‘very poor’ conduct
In the final quarter of 2025, MBFS conceded compensation was owed but failed to be reached after the customer did not agree on the amount.
During this time, the customer continued to drive the car, in which during November 2025 a fault saw “the brakes applied automatically while he was driving, which could have resulted in a serious accident”.
Read more ‘Very concerned’: City watchdog scolds motor finance lenders over £9bn redress scheme
“The issues with the car did potentially represent a serious safety risk,” the ombudsman said “this will have understandably caused increased anxiety and worry”.
The customer subsequently handed the car into a garage in early 2026, refusing to collect it which led to MBFS stopping billing him. But the FOS did add that if the customer “stopped using the car earlier it is more likely than not that the rejection might have been resolved at an earlier date”.
Still, the FOS hit out at MBFS’ “overall handling of the quality issues with the car to have been very poor”.
In the final decision, as well as the refunded payments, MBFS was made to refund the customer’s deposit of £2,100, the £475.20 he had paid for additional work and £500 for the “distress and inconvenience caused”.
Mercedes-Benz’s motor finance business is currently coming under fire amid the £9bn redress scheme facing the UK industry.
The manufacturer is one of three industry businesses challenging the Financial Conduct Authority’s scheme.
It has provisioned £400m for the car mis-selling scandal, which relates to the use of ‘secret’ commission agreements between car dealers and lenders that left consumers in the dark.
Last week, City AM revealed the City watchdog had written to more than 100 motor finance lenders with concerns they were not yet prepared for the industry redress program.
A spokesperson for Mercedes-Benz said: “Mercedes-Benz Financial Services are committed to treating customers fairly and to complying with the regulatory framework under which we operate. Where matters are referred to the Financial Ombudsman Service, we fully engage with the process and abide by its decisions.”
Read more Banks ‘not ready’ for motor finance scheme, says City watchdog
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