FCA compliance failing costs Volkswagen Finance £27m

Volkswagen Finance has been slapped with a £5.4 million fine by the Financial Conduct Authority (FCA) for failing to treat customers in financial distress fairly.

Between January 2017 and July 2023, Volkswagen Financial Services, one of the UK’s largest motor finance providers, failed to properly assess and support the needs of over 110,000 customers struggling to make payments.

The FCA found that the company’s actions put many customers, especially vulnerable ones, in even more difficult situations through failing to properly understand their personal circumstances, leading to blanket decisions being imposed.

In some instances, Volkswagen Finance repossessed vehicles without considering alternative solutions, such as adjusting payment plans. For many, this meant losing essential transport needed for work or family commitments.

As a result of its failings, Volkswagen Finance has now agreed to pay over £21.5 million in compensation to customers who suffered harm.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: "For many, a car is not a nice-to-have but a necessity for work or for family life. Volkswagen Finance made tough personal situations worse by failing to consider what those in difficulty might need."

"It is right that they compensate those who suffered. This fine and redress should send a clear signal to lenders that they need to properly support those in financial difficulty."

The FCA also noted that the enforcement investigation into Volkswagen Finance took just 13 months to complete - significantly faster than the 42-month average for investigations in 2023-2024 with Chambers noting: "This is an example of how the FCA is carrying out its enforcement work faster and with greater focus, ensuring that firms that fail their customers face the consequences."

Volkswagen Finance, which provides finance options for several well-known brands including Volkswagen, Skoda, and Porsche, had faced a potential fine of £7.7 million. However, by agreeing to resolve the matter swiftly, the company qualified for a 30% discount on its fine.

Volkswagen Finance’s failings were exacerbated by its reliance on automated and templated communications, which did not take into account the specific needs of individual customers.

In response to the FCA's findings, Volkswagen Finance said it has set up a redress scheme to compensate affected customers. The company has also made significant changes to how it operates, including improving its staff training and introducing a new debt collection model aimed at offering better support to those in financial difficulty.

Customers impacted by the firm’s previous practices will be contacted directly about their compensation. While no immediate action is required from customers, those who have questions or whose contact details have changed are encouraged to contact Volkswagen Finance.

This case is part of a wider FCA crackdown on lenders who fail to provide adequate support to struggling borrowers. Over the past four years, the regulator said it has worked with nearly 100 lenders to improve how they handle customers in financial distress, resulting in more than £65m in redress for over 320,000 people.

Chambers added: "This case highlights the importance of lenders understanding their customers’ individual circumstances. By failing to do so, they risk making bad situations worse."

The FCA has taken action against several financial firms for mishandling customers in difficulty. The watchdog has previously fined major banks including HSBC, Barclays and Lloyds for similar failings.

Earlier this month, the FCA also fined TSB Bank £10.9 million for failing to ensure fair treatment of customers who were in arrears.