The financial arm of Volkswagen has been penalized £5.4 million by the City watchdog and is providing over £21.5 million in compensation due to significant failures in addressing the needs of distressed customers.

An investigation carried out by the Financial Conduct Authority (FCA) uncovered multiple issues related to how Volkswagen Financial Services (UK) managed customers who fell behind on payments. This included the problematic repossession of vehicles from clearly vulnerable individuals without exploring alternative solutions.

The FCA’s investigation revealed the troubling case of a customer in debt who disclosed to the Volkswagen team that he had attempted suicide and had communicated ongoing struggles such as a challenging divorce and job loss. Despite his pleas, including the specific statement, “You are speaking to a vulnerable customer and you’ve not helped me,” the company proceeded with the repossession of his vehicle.

Another noted incident involved a young woman recorded in distress, “in floods of tears,” as she faced the loss of her car.

The company is set to provide compensation to at least 109,589 individuals who were adversely affected, having already allocated £17.8 million to 80,191 customers.

This £5.4 million penalty represents the largest fine ever imposed on a motor finance entity by the regulatory authority. The investigation into Volkswagen Financial Services is distinct from a wider probe into potentially unjust commission practices in the car loans sector dating back to April 2007.

Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, remarked: “For many individuals, a car is not just a luxury, but a necessity for work or family obligations. Volkswagen Finance exacerbated challenging personal circumstances by neglecting to address the needs of those in crisis. It is imperative that they compensate affected individuals. This penalty and compensation should clearly indicate to lenders the need for improved support for customers facing financial hardships.”

Volkswagen Financial Services ranks among the largest automotive loan providers in the UK, offering financing for purchases and leases across various brands, including Audi, Seat, Skoda, and Porsche. The FCA’s findings highlighted mishandling of customer situations from early 2017 to the end of July last year, a timeframe during which the company managed approximately 2.8 million accounts valued at £55.5 billion.

Notable deficiencies included a “lack of inquiries by VWFS to ascertain the extent of customers’ vulnerabilities” and minimal attempts to contact customers prior to vehicle repossession. These issues were intensified due to the firm’s reliance on template communications throughout the collections procedure.

In response, Volkswagen Financial Services acknowledged past mistakes, stating: “We recognize our shortcomings in these instances and have implemented significant changes over recent years to enhance our service quality. We are actively concluding our remediation processes while continuing to provide goodwill payments to those impacted and extend our apologies for any hardship caused.”

Earlier this month, the FCA fined TSB £10.9 million for its handling of customers in financial distress, while HSBC faced a £6.3 million penalty in May for similar issues. In 2020, Lloyds Banking Group and Barclays were fined £64 million and £26 million respectively for their treatment of troubled customers.