The Financial Conduct Authority (FCA) has amplified its regulatory oversight across various sectors, taking particular aim at consumer protection practices in automotive finance. Recently, Volkswagen Financial Services (VWFS) faced a £5.4 million fine from the FCA, bringing widespread attention to the industry’s handling of financially vulnerable customers. This case not only illustrates the FCA’s strengthened commitment to enforcing consumer care standards but also highlights the serious consequences that automotive lenders face for falling short in this area.
Eddie Flanagan
FCA’s Standards and the VWFS Case
Under a complex myriad of legislation, rules and the Consumer Protection Act, the FCA enforces stringent requirements across financial services to prioritise customer care, especially for those experiencing financial difficulty. VWFS’s recent fine arose from a lack of empathy shown to customers struggling with payments due to hardships caused by the COVID-19 pandemic and the cost-of-living crisis. VWFS reportedly did not meet these customer care standards, leading the FCA to take significant action as a signal to other auto finance companies.
VWFS cooperated with the FCA’s investigation, which reduced its potential fine from £7.7 million to £5.4 million – and the company has since apologised and implemented new debt collection practices. Its new approach aims to provide more compassionate handling of customer complaints, setting a precedent for others to follow. With the majority of new cars in the UK purchased through financing, this case sends a clear message: automotive lenders must align their practices with the FCA’s consumer protection standards or risk severe penalties.
Tackling Discretionary Commissions and Transparency Concerns
The VWFS fine comes as part of the FCA’s broader crackdown on perceived unfair practices it views as potentially exploitative within the motor finance industry. A significant area of focus has been discretionary commission arrangements (DCAs), which allowed lenders considerable flexibility in setting interest rates for customers. DCAs were widely used, impacting approximately 75% of car finance agreements between 2007 and 2020. However, they were banned in 2021 due to concerns over their fairness, and replaced by calls for a payment protection insurance (PPI)-like redress scheme for affected consumers.
Following the DCA ban, the FCA has expanded its review of the auto finance industry to include broader debt collection practices and misconduct. This investigation falls under the FCA’s powers granted by the Financial Services & Markets Act, underlining its readiness to take action where necessary.
John,Hopcrat and Wrench
In October the Court of Appeal gave its judgement in the above three cases that were heard at the same time. The outcome shocked both the automotive industry and that of the financial services sector. It was held that a used car salesman could have a fiduciary duty to their customer. Whilst this judgment is subject to an expedited appeal the automotive industry appears to be working hard to build greater trust and transparency in its procedures, regardless of the outcome. That said, the outcome will influence the claims management industry that is focused on this area.
New Complaint-Handling Rules Reflect Heightened Expectations
It’s important lenders manage their volume of consumer complaints effectively and sensitively. Investigating data logs with a fine tooth comb has become a good way for the FCA to seed out any bad apples in the sector. However, there have been concerns over the fairness of holding lenders accountable to these new, rigorous standards.
As a result, the FCA has introduced new complaint-handling rules, introduced as part of this broader review, granting companies extended response times for complaints. This adjustment aims to ensure careful, thorough review of cases, allowing the FCA to assess complaints fairly and proportionately ands seed out ‘bad apples’ fairly, across the industry.
For automotive finance companies, these updates mean that their complaint-handling systems must be precise, transparent, and consistently responsive. The FCA monitors complaint data as an indicator of a company’s treatment of customers, and a high volume or prolonged response time could trigger further scrutiny. For lenders, this emphasises the need to maintain accurate complaint logs and streamline handling processes to avoid regulatory challenges.
The Future of Compliance
The heightened focus on compliance and consumer care practices across the automotive finance sector highlights a shift in the regulatory landscape. Lenders are now expected to implement and evidence proactive measures, to actively demonstrate how they protect their customers and especially those of a vulnerable nature. The developments suggested the FCA is aiming to strike a balance between innovation in the automotive sector and consumer protection – and is not afraid to enforce the latter.
The FCA’s recent actions and new requirements illustrate a shift toward a more investigative regulatory approach, positioning consumer protection at the core of financial services. Automotive finance companies should interpret this shift as a call to not only review their processes but also to align with FCA standards for compassionate customer treatment. In this new landscape, proactive compliance is essential—not merely a formality but a commitment to upholding customers’ interests in an increasingly regulated market.
As the FCA continues to monitor and address customer care practices, the stakes are rising for lenders in the automotive finance sector. Lenders must now conduct regular audits, ensure systems are compliant, and actively document practices that demonstrate a commitment to the Consumer Duty. By doing so, they can reduce the risk of regulatory consequences, whilst building stronger relationships with customers.
Author: Eddie Flanagan, Partner at Shakespeare Martineau
