FCA issues £5.4m fine over treatment of customers

29 October 2024 | UK & Europe | Articles

The FCA has imposed a significant fine of £5.39 million on Volkswagen Financial Services (UK) Limited (VWFS) for failing to treat customers in financial difficulty fairly. The Final Notice, published in October, paints a concerning picture of a financial institution where documented procedures, designed to protect vulnerable clients were not effectively implemented. This is a clear reminder from the regulator to make sure your compliance setup allows you to meet your obligations to clients.

The FCA’s investigation revealed that the company’s failings had a detrimental impact on a significant number of customers. Many individuals were unable to meet their financial commitments due to unforeseen circumstances, such as job loss or illness. Volkswagen Finance’s actions, which included repossessions and excessive charges, further compounded these difficulties for its customers.

Designed but not delivered: A gap between paper and practice

VWFS’s documented procedures outlined a clear framework for handling customers experiencing financial difficulties. These procedures included measures to assess customers circumstances, offer tailored support options, and communicate effectively. However, the FCA’s investigation revealed a stark contrast between the planned approach and what actually happened. This indicates a significant breakdown across all three lines of defence.

A reactive approach, not proactive protection

The FCA identified a critical flaw – VWFS did not proactively identify customers facing financial difficulties. This resulted in customers struggling without receiving the support they were entitled to under the company’s own policies. The FCA specifically notes that VWFS “only identified the shortcomings in its treatment of customers in financial difficulty following proactive supervision and file review work undertaken by the Authority as part of the borrowers in financial difficulty project”.

This suggests that VWFS was unaware of its own failings, relying on external oversight to catch problems, rather than internal initiatives to proactively identify and support vulnerable customers.

Red flags ignored: A history of weak past performance

The FCA’s findings were further amplified by VWFS’s past performance. The Final Notice mentioned “poor results” from VWFS’s past business review in the customer vulnerability area.

From a sample of 100 cases reviewed, 49% of customers were recorded as having received unfair treatment. This points to a company with a history of struggling to effectively manage customer support in financial hardship situations.

Core areas of failure: A breakdown of essential practices

The FCA identified four main failings in VWFS’s treatment of customers:

• Failure to assess customer circumstances: VWFS did not adequately assess individual customer circumstances before taking action. This resulted in customers facing repossessions or excessive charges despite having viable solutions.
• Inadequate support options: VWFS did not provide tailored support options for customers in financial difficulty. This limited the effectiveness of its customer assistance programs.
• Poor communication practices: VWFS communications were often unclear and unhelpful. This added to the stress and confusion experienced by these vulnerable individuals.
• Misleading information: The FCA found evidence of VWFS providing misleading information to customers about their rights and options.

The impact of the findings

The FCA’s fine underscores the seriousness of the firms’ failings. The lack of effective procedures ultimately impacted a significant number of customers. These individuals faced unnecessary stress and financial hardship due to VWFS’s own shortcomings.

In response to Volkswagen Finance’s breaches, the FCA has imposed a financial penalty of £5,397,600. Volkswagen Finance would have been fined £7,710,885.73, but it agreed to resolve these matters and so qualified for a 30% discount. Additionally, the company has agreed to pay over £21.5 million in redress to approximately 110,000 affected customers.

The FCA has also required Volkswagen Finance to implement several measures to improve its practices and ensure that it treats customers fairly in the future. These measures include:

• Enhanced training: Volkswagen Finance will provide additional training to its staff on how to identify and support customers facing financial hardship.
• Improved communications: The company will implement clearer and more empathetic communication processes to ensure that customers are fully informed of their options and rights.
• Enhanced debt collection procedures: Volkswagen Finance will review and improve its debt collection procedures to minimize the negative impact on customers.

Volkswagen Finance has acknowledged the FCA’s findings and expressed its regret for the shortcomings identified in its treatment of customers. The company has stated that it is committed to rectifying the issues and ensuring that its future practices align with regulatory requirements.

A lesson for all

The case of VWFS serves as a reminder for all. Proactive customer support, robust procedures for handling financial difficulty, and effective information of those procedures are essential to ensure fair treatment of all customers. This case also highlights the importance of a strong internal culture that prioritises customer well-being.

The FCA has previously fined HSBC, Barclays, Lloyds, and TSB for failures in how they treated customers in financial difficulty. The latest fine sends a clear message that the regulator has and will continue to take a tough stance on firms that fail to meet their obligations to customers.

How can Bovill Newgate support help you avoid being caught under the regulator’s microscope?

Our team of experts has significant insight into the FCA’s approach to these topics and we have already supported a number of clients in these areas.

We can determine how the findings affect your business and ensure your processes are in line with the regulator’s suitability and Consumer Duty requirements.

Get in touch if you’d like to discuss how we can help you navigate this regulatory update or how we can support your business.