Background
Volkswagen Finance is one of the largest Motor Finance providers in the UK. On 21 October 2024, the Financial Conduct Authority (FCA) fined Volkswagen Finance (VWFS) £5.4 million over its treatment of customers in financial difficulty.
Various failings in VWFS' approach to such customers were identified during FCA supervisory work that was undertaken to assess how lenders support borrowers in difficulty. In particular, VWFS breached principles 3, 6 and 7 of the FCA's principles for business by failing to:
- treat customers in financial difficulty fairly;
- communicate clearly and fairly with such customers; and
- organise and control its affairs effectively with adequate risk management.
In addition, VWFS violated specific rules in the consumer credit sourcebook (COCON) and the dispute resolution complaints sourcebook (DISP)
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight, 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 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.”
The FCA found that VWFS had not made sufficient efforts to understand the circumstances of its customers, or any vulnerabilities they might have. This led to VWFS taking inappropriate actions that caused additional distress. The FCA found VWFS's approach to forbearance and due consideration in particular was inadequate, with a lack of sustainable support for customers in financial difficulty. VWFS were held to have failed to take reasonable steps to resolve customer arrears positions before progressing to termination and repossession.
The FCA imposed a financial penalty of £5,297,600 on VWFS for these failings. This figure was derived by applying the FCA's standard five step penalty formula and included a 30% discount for agreeing to settle at stage 1.
Comment
Motor finance is governed by legal rights and obligations set out in the Consumer Credit Act 1974 ("CCA 1974"). These are supplemented by regulatory rules and principles imposed by the FCA and which are contained in the FCA handbook.
Given the very prescriptive nature of provisions in the CCA 1974 for dealing with arrears (such as in relation to service of default notices), there is a risk that firms will assume that compliance with the CCA 1974 is justification for them taking enforcement action against customers, particularly where firms have a legal entitlement to repossess a customer's vehicle.
In this case VWFS had internal written policies and procedures which incorporated FCA rules for forbearance, but the FCA found that in practice these were not followed by staff.
In assessing level of penalty, the FCA expressed concern that VWFS had not reviewed the adequacy of implementation of its policies and procedures following FCA publication of Final Notices involving similar arrears handling weaknesses (including Yorkshire Building Society, Moneybarn, Lloyds and Barclays). The FCA therefore imposed a 10% uplift on penalty. This is a reminder, if any is needed, that firms must keep abreast of developments in regulation. It is insufficient to passively rely on FCA Dear CEO letters and other direct communications with firms.
In its press release, the FCA was keen to report that its investigation in this case took 13 months, compared to an average of 42 months for cases closed in 2023/24. This reflects a new speedier approach to investigations, which has been instigated by the FCA's new Directors of Enforcement and Market Oversight.