Volkswagen takes £725m hit from motor finance scandal
The finance arm of Volkswagen has taken a mammoth hit from the motor finance scandal plunging it to a loss for the year.
Volkswagen Financial Services UK (VWFS) set aside £725m for expected expenses under the City watchdog’s industry-wide car finance redress scheme, according to new account filings.
The provision swung the firm to a £352.9m loss for 2025, compared to a £110.3m profit in the year prior. It said without the writedown, profitability would have increased after revenue rose to £3.41bn from £3.14bn the year prior.
VWFS said its provision was based on the criteria set out in the Financial Conduct Authority’s (FCA) policy statement, but added the rules “do not reflect the specific elements of, or provide sufficient clarity on, how the scheme applies to a captive finance provider”.
Captive lenders are the financial subsidiary of a parent manufacturing or retail company. VWFS, along with the finance arm of Mercedes Benz and French-owned CA Auto Finance, have launched a legal challenge to the FCA’s redress scheme arguing it forced an unlawful blanket assumption that most customers suffered a financial loss if their commissions were not clearly disclosed.
“The VW group supports redress for customers who were genuinely disadvantaged but has identified several issues that the VW group believe require independent consideration, including how the redress scheme applies in a captive lender model, where in some cases customers paid less because their finance was supported by one of the VW group brand partners,” the group said in its accounts.
Volkswagen raises ‘serious’ concerns in legal drama
The Supreme Court partially overturned a landmark ruling on car finance deals last year, rejecting claims that hidden commissions were automatically unlawful. But it found one customer’s undisclosed commission created an “unfair relationship”, leaving the door open for an industry-wide redress scheme by the FCA.
In March, the regulator published the final outlines for its scheme which reduced lenders overall bill to just over £9bn from an estimated £11bn.
City AM revealed this week opponents to the redress scheme were ramping up pressure on the City watchdog to release its communications with the Treasury and modelling data for the programme.
The FCA’s legal filings brand the calls for further disclosure as “fishing expeditions”.
“The overall impression created by the totality of these disclosure requests is that Volkswagen and CAAF are simply hoping something will turn up,” the FCA’s counsel said in documents seen by City AM.
But lawyers for VWFS’ have said the regulator’s wish to “shield its analysis from proper scrutiny is a serious cause for concern”.
Nikhil Rathi, the boss of the FCA, told MPs earlier this year: “What we are dealing with is on one side lenders who didn’t always want to acknowledge that they had harmed consumers… and on the other side a claimants management ecosystem, which is largely seeking to generate as much profit as they can”.