FCA enforcement action over the treatment of customers in financial difficulty

The Financial Conduct Authority (FCA) issued a Final Notice against Volkswagen Financial Services (UK) Limited (VWFS), imposing a financial penalty of £5.4 million for serious failings in the way the firm treated customers who were experiencing financial difficulty. The decision, dated 21 October 2024, relates to VWFS’s conduct over a period of more than six years, from 2017 to 2023.

VWFS is one of the UK’s largest motor finance providers, offering regulated finance agreements across a number of well-known vehicle brands. The FCA found that during the relevant period the firm breached several of the FCA’s Principles for Businesses, including the requirement to treat customers fairly, to communicate in a clear and not misleading way, and to maintain effective systems and controls. VWFS was also found to have breached rules in the Consumer Credit sourcebook (CONC) and the FCA’s complaints handling requirements.

The FCA’s findings focused on VWFS’s treatment of customers who had fallen into arrears or were struggling to maintain payments. Particular concern was raised about the firm’s handling of vulnerable customers, including those affected by circumstances such as mental health difficulties, bereavement, unemployment, illness or relationship breakdown. The regulator concluded that VWFS often failed to properly understand customers’ individual situations and did not consistently identify, record or respond appropriately to vulnerability indicators.

The FCA also highlighted shortcomings in the firm’s approach to forbearance. Firms are expected to explore a range of sustainable options when supporting customers in financial difficulty, but the FCA found that VWFS frequently relied on short-term payment arrangements without sufficient affordability assessments or meaningful engagement. In many cases, customers were not offered appropriate tailored solutions and were instead presented with limited options such as settlement or voluntary termination.

Serious concerns were also raised about termination and repossession practices. The FCA found that some customers in financial difficulty, including vulnerable individuals, had their agreements terminated and vehicles taken away without VWFS adequately assessing their circumstances or considering the full range of support options. The regulator noted that the firm made limited attempts to engage with customers before repossession and was often unwilling to discuss forbearance once termination action had begun.

Communication failures formed another key part of the FCA’s decision. VWFS relied heavily on standardised arrears correspondence, much of which did not encourage constructive engagement or clearly explain the support available. The FCA also found that certain Default Notices referred to “late payment interest” despite VWFS not charging default interest, which was likely to increase customer confusion and distress. In addition, the firm failed in some instances to recognise and handle customer complaints properly under FCA dispute resolution rules.

VWFS has established a redress programme and has already paid significant compensation to affected customers, with further payments expected. The FCA described the failings as serious and systemic, particularly given the potential impact on consumers already facing financial hardship. The enforcement action forms part of the FCA’s wider focus on ensuring lenders deliver fair outcomes for borrowers in financial difficulty.

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