Volkswagen Group is considered the biggest carmaker worldwide, which has been ordered to pay a substantial fine of £5.4 million for treating customers unfairly. Further, the company also has to pay a record £21.5 million to about 110,000 people who were affected because of this poor treatment. Some people were having their vehicles taken away without much warning if there were major issues, such as mental illness or relatives who were not well.

What Did Happen and Why?

The UK’s Financial Conduct Authority, who police the companies to ensure they treat customers fairly, have reviewed Volkswagen Financial Services (VWFS). VWFS is part of the Volkswagen group, which deals in car finance. In simple terms, they are making loans to those wanting to secure a car from Volkswagen, Audi, Skoda, or Porsche.

Car financing is also quite popular in the UK to buy a new car as often, a buyer would not have all that money at a go. The owning companies of financing services are mostly owned by the manufacturers themselves, like VWFS. It is very profitable. VWFS alone generated £276 million profit in 2023 aiding funding for 400,000 cars worth more than £10 billion!

However, everything started to go wrong when VWFS did not treat a few of its customers right, especially those who were strapped for cash. According to the FCA, between 2017 and July 2023, VWFS failed to assist people having financial difficulties when paying their car loans. Many of them lived under hard conditions such as the COVID-19 pandemic and the cost of living crisis, which made it difficult for these people to keep up their payments.

What Did VWFS Do Wrong?

For those in grave financial conditions, FCA states that VWFS made things worse as the company did not alleviate the suffering but instead, it raised their stress levels. Among them were serious cases such that one had even attempted suicide. Even after all this, VWFS still sent letters demanding money. Sometimes, it will take away a car from the people who use it for going to work or taking care of their families.

One telling example was a parent who contacted VWFS stating their child had attempted suicide due to financial difficulties and a custody dispute. Two weeks later, though, VWFS penned a threatening letter that only further worsened the situation for the consumer. Another consumer pleaded with VWFS for just a little extra time in which to pay, citing divorce, and care for a cancer-ridden relative. VWFS did not care for the customer’s call and presented no meaningful assistance to him. In most the cases, VWFS customer care was cold with no sympathy. The FCA stated that the agents of VWFS did not care much about the plight of its customers. In one case, one customer service agent made a sarcastic remark saying how many days are in a month. An agent transferred a customer to different departments which could not help him at all.

So why does this matter?

Lenders like VWFS are under a legal duty to treat their customers fairly, especially when customers are in dispute, failing or having difficulty making payments. This is referred to as “duty of care.” When companies like VWFS don’t follow the rules, huge amounts of damage are done. People stand to lose their cars-a lifeline, perhaps-to get to work or take care of family members. For most of us, a car is not just a luxury – it’s something they really need.

The FCA said VWFS did not take its duty of care seriously enough, and that is why it is being fined. FCA executive director Therese Chambers said a car may be an amenity for some; for many, it is essential for getting to work and for family purposes. She suggested that VWFS actions, through their lack of thinking about the needs of the customer in financial trouble, did no less than exacerbate “tough personal situations.” She pointed out that it was Volkswagen’s right to compensate those that suffered and the fine should send a stern message to other lenders: they need to help properly people in financial difficulty.

Response of VWFS

After the investigation conducted by FCA, VWFS acknowledged that it had made mistakes. According to a spokesperson of VWFS, the firm realized it had not done enough in the past and thus has changed its ways to improve the service over the last few years. The company further said it was almost closing its efforts to make things right with customers and still made “goodwill payments” to those who had been affected.

VWFS managed to avoid a fine more than that imposed. Had they not attempted to cooperate with the investigation initially, VWFS would have been hit by £7.7 million, but the fine was lesser because of the cooperation exhibited by VWFS. The company installed a new system of debt collection afterwards to avoid the kind of problems in the future.

Prospects Ahead

It is not a closed chapter yet for the FCA. It also addresses questions on other issues that are ongoing – whether dealers were indeed charging people ‘over the odds’ for their cars. The FCA strives to ensure that lenders and dealers observe rules while being fair to customers in these trying times.

It reminded me of the whole thing that big corporates, such as Volkswagen, earning their billions also have a duty of care towards customers. Failure on their part can cause immense pain to people already in a very dire situation. In this case again, what has highlighted the importance of fair treatment in business and how regulators like FCA are there for the most vulnerable.