FCA fines VWFS £5.4m over customer mistreatment

Volkswagen Financial Services (UK) has been fined £5.4m by the Financial Conduct Authority (FCA) for failing to treat its customers in financial difficulty fairly, and has agreed to pay over £21.5m in redress to around 110,000 customers who may have suffered harm as a result.

The regulator found that between 1 January 2017 and 31 July 2023, VWFS failed to understand customers’ individual circumstances or to provide support tailored to their needs.

In some cases, the finance provider took cars away from vulnerable customers without considering other options, which the FCA said risked putting people in a worse position, particularly if they relied on their car to travel to work. These issues were compounded by what the regulator called “poor templated and automated communications”.

The failings were identified during the FCA’s supervisory work to assess how lenders support borrowers in difficulty.

FCA final notice

In its findings, the FCA said VWFS had breached Principles 6, 7 and 3 of the Principles for Businesses (PRIN) by failing to (a) pay due regard to the interests of those customers and treat them fairly, and the information needs of those customers and communicate with them in a way that was clear, fair and not misleading; and (b) take reasonable care to organise and control its affairs responsibly and effectively.

In addition, VWFS breached CONC 7.2.1R, 7.3.4R, 7.3.9R, 7.3.14R(1) from the Consumer Credit sourcebook (CONC) when failing to treat customers in financial difficulty with forbearance and due consideration and DISP 1.3.1R from the Dispute resolution: Complaints sourcebook (DISP) by failing to identify some complaints and treat them as such.

The FCA highlighted “limited or no probing” of individual circumstances to identify suitable forbearance options and limited evidence of affordability assessments being used when agreeing alternative payment arrangements.

As a result, the arrangements offered by VWFS were often not sustainable and customers who had already failed to maintain a previous arrangement were often caught in a cycle of simply being rolled onto further arrangements that they were also unable to maintain.  Customers in financial difficulty were often merely presented with early settlement or voluntary termination. 

Case studies provided by the FCA included that of a customer (“TD”)  who drew attention to divorce or anxiety in 14 telephone calls to 12 different VWFS workers and once in writing, without the finance provider taking appropriate action. Indeed, just over two weeks after TD told VWFS that he had recently tried to take his own life, VWFS continued to send TD correspondence that he considered to be threatening, and which included a letter demanding payment within 7 days and a default notice in respect of repossession fees. 

In another instance CD, a customer who informed VWFS that he was in financial difficulty and could no longer afford the repayment, experienced what the regulator labelled “a poor-quality conversation”.  During the call, CD asked: “I’ve just told you I’m in financial difficulty and you’re telling me it’s going to cost me 20 grand to give you the car back?”, to which the agent responded in the affirmative.

There were also multiple examples of agents who displayed a “lack of empathy” in phone communications, including one who sarcastically reminded the customer of the number of days in a month, and another who put him through to departments that could not help him.

Remedial action

“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 it compensates those who suffered. This fine and redress should send clear signals to lenders that they need to properly support those in financial difficulty.”

VWFS established an internal review of its procedures, and has also set up a redress scheme to compensate affected customers. The company said it has made improvements to its training for customer service staff and communications, and has also introduced a new debt collections model.

A VWFS spokesperson said: “We recognise our shortcomings in these past cases and have made significant adjustments over recent years to ensure that we are always delivering the right level of service.

“We are in the process of concluding our remediation efforts as we continue to provide goodwill payments to affected customers and apologise for any detriment caused.”

Regulatory activity

The FCA has worked with nearly 100 lenders in the last four years in a bid to improve the way they treat struggling customers, securing over £65m in redress for over 320,000 customers. The regulator has previously fined HSBC, Barclays, Lloyds and TSB for failures in how they treated customers in financial difficulty.

VWFS Finance was originally fined £7,710,885.73, but qualified for a 30% discount as the lender  agreed to resolve these matters, leaving a final bill of £5,397,600.

“There is no doubt that the FCA – and other regulators – are baring their teeth when it comes to ensuring financial services companies keep the customer front and foremost in their thinking. But in some cases they also risk taking a big bite out of lenders’ opportunities to innovate and develop new products. One of the issues here is perhaps an over-reliance on automation when the message from the FCA is for less automation and more human interaction.

“That’s the reason AFC’s autumn conference is focused on how the industry can better manage increasing intervention from regulators and policy-makers. We all want a growth economy which brings benefits to companies and consumers alike, but we need to cooperate closely for this to happen.”

The opening session of AFC’s November conference features interviews with Isak Bengtzboe, chief policy adviser and legal adviser at Eurofinas, and Stephen Haddrill, director general of the Finance & Leasing Association. They will be discussing what is driving the increased intervention in financial services in the EU and UK and considering what the industry, policy makers and trade associations can do to regulate better.

Find out more about AFC’s November conference here.