Enforcement watch: the FCA fines Volkswagen Financial Services (UK) Ltd £5.4m over treatment of customers in financial difficulty

Principle 3, which requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, was breached because Volkswagen failed to implement arrears and vulnerability policies and procedures in relation to supporting vulnerable customers and recognising, considering and applying appropriate forbearance.

In addition, the FCA identified breaches of both Principles 6 and 7. Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly, whilst Principle 7 requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way that is clear, fair, and not misleading.  For example, the FCA identified:

• A lack of sufficient probing where there were indicators of vulnerability in order to understand the nature of the vulnerability and whether any tailored support may be required;

• Volkswagen failed to record vulnerabilities in 92% of applicable cases and instead, cases were progressed to termination and repossession in the usual way, without taking into account the vulnerability indicators;

• As a result of the failure to identify and/or record vulnerable customers, the FCA found that Volkswagen failed to take particular care to ensure that vulnerable customers were treated fairly, including limited evidence of affordability assessments, tailored communications and enhanced forbearance options or other proactive approaches to support vulnerable customers, thereby causing additional distress and upset;

• Volkswagen were found to have failed to probe the financial circumstances of customers either sufficiently or at all in order to identify whether support or forbearance was needed or identify affordable and sustainable forbearance options. Instead, forbearance predominantly took the form of repayment plans which broke down continuously, for example due to an agreement to repay within an unreasonably short period or an unaffordable repayment amount;

• Volkswagen were found to be unreasonable in terminating agreements and taking repossession steps without considering other options, refusing to renegotiate with customers who were developing repayment plans and limited attempts to contact customers beforehand. Upon termination, Volkswagen seized vehicles in many cases, leaving some customers without a means of transport and, in some cases, leading to a loss of income thereby compounding their financial position further.
• Other shortcomings were in relation to customer communications, which were often automated and relied upon templates.

The facts above were also found to have been a breach of the Consumer Credit Sourcebook 7.2.1R, 7.3.4R, 7.3.9R and 7.3.14R (1), together with 1.3.1R of the Dispute Resolution Complaints.

Volkswagen have begun compensating customers and have identified at least 109,589 customers who suffered loss or were at risk of suffering loss due to the failings. Volkswagen have already paid £17,823,500 in compensation and estimate that they will pay over £21,506,496 in total.