BMW Financial Settles $2M Case Over Disputed Lease Refunds to Servicemembers

BMW Financial Services reached a settlement with the U.S. Department of Justice for $2 million last week over disputed refund lease charges to servicemembers.

The Justice Department claims that BMW failed to properly refund servicemembers who sought to legally terminate their lease when sent on active deployment. Woodcliff Lake, N.J.-based BMW Financial Services settled the case but neither admits nor denies the factual allegations, according to the published agreement. 

BMW is the first auto lessor to be charged under the Servicemembers Civil Relief Act. The lender did not make these refunds as a matter of policy or practice, the department claims. 

The dispute centers around capitalized cost reduction (CCR), which is an upfront credit provided by the manufacturer for a trade-in vehicle. That credit is meant to reduce the borrower’s future monthly payments because the trade-in vehicle helps to make up for value lossed in the new lease, the Justice Department claims.

This point is disputed by BMW, who argues this credit is tantamount to a down payment, which is serviced and paid for by the dealer, rather than the lender, according to the settlement.

One example of this refund was included in the complaint. Kristi Steck, a senior master sergeant in the U.S. Air Force signed a lease with BMW Financial Services in 2014. She received a $500 rebate and $4,160 credit for her previous trade in, which she used to reduce the monthly payments on her new lease. In 2015, she was transferred to Japan from Andrews Air Force Base in Maryland, but when she requested a partial refund for the trade-in value not yet realized, BMW allegedly refused.

“BMW Financial Services and the Department of Justice worked closely to reach the settlement agreement announced today, which will result in a better understanding of this unusual legal issue,” BMW Financial Services spokesman told Auto Finance News in a statement. “The agreement settles and closes the complaint, and we are pleased the Department worked with us to establish a clear process for service members who terminated their lease agreement under the Servicemembers Civil Relief Act to receive refunds when appropriate.”

The Department of Justice did not respond to a request for comment on this story by press time.

The settlement calls for BMW to refund all servicemembers with lease terminations since August 2011 through a calculated formula based on the borrower’s needs plus an additional $500. The agreement also calls on the lender to submit new procedures for dealing with the refunds in the future as well as employee training.

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