Volkswagen finance arm posts loss after £725m redress provision

Volkswagen Financial Services UK has reported a £352.9m loss for 2025 after setting aside £725m for expected costs under the Financial Conduct Authority’s industry-wide motor finance compensation scheme.

Newly filed accounts show the manufacturer’s UK finance business moved into the red from a £110.3m profit the previous year, as reported by City AM. The provision comes while the business is challenging the regulator’s approach to lenders owned by vehicle manufacturers.

What happened

Revenue increased to £3.41bn from £3.14bn a year earlier. Volkswagen Financial Services UK said profitability would also have improved without the redress charge, separating the impact of the compensation provision from the performance of its lending operations.

The company calculated the provision using the criteria in the FCA’s policy statement. However, it said those rules did not adequately address the characteristics of its business or make sufficiently clear how the scheme should apply to a captive lender.

Captive finance providers are lending subsidiaries of manufacturing or retail groups. Their relationship with the parent business is central to Volkswagen’s objection: it says support from group brands could lower customers’ finance costs, a feature it believes the redress framework does not properly accommodate.

The background

The legal basis for compensation was shaped by a Supreme Court judgment last year. The court partly reversed an earlier landmark ruling, rejecting the proposition that undisclosed commissions were necessarily unlawful.

However, the court found that an undisclosed commission in one customer’s agreement had created an unfair relationship. That finding left scope for the FCA to establish a wider compensation programme rather than closing off claims over historic motor finance arrangements.

The regulator published the final shape of its scheme in March. Its revised assessment put the overall cost to lenders at just over £9bn, down from an earlier estimate of £11bn.

Volkswagen Financial Services UK, the finance arm of Mercedes-Benz and French-owned CA Auto Finance have brought a legal challenge. They dispute what they regard as an unlawful general assumption that most customers lost out financially where commissions were not clearly disclosed.

What people are saying

In its accounts, Volkswagen Group said it supported compensation for customers who had suffered genuine disadvantage. Its objection concerns several aspects of the scheme that it believes need independent examination, including the treatment of agreements supported by its own vehicle brands.

The dispute also extends to access to the material behind the regulator’s decisions. Opponents are pressing the FCA to disclose communications with the Treasury and the modelling used to develop the compensation programme.

The FCA’s legal team has resisted those requests, arguing in court documents that Volkswagen and CA Auto Finance are seeking information in the hope of uncovering something useful rather than pursuing sufficiently grounded disclosure demands.

Lawyers for Volkswagen Financial Services UK take the opposite position. They have argued that the regulator’s resistance to scrutiny of its analysis raises serious concerns.

FCA chief executive Nikhil Rathi told MPs earlier this year that the regulator faced competing pressures. He criticised lenders that had been reluctant to recognise consumer harm, while also questioning the profit-driven incentives of claims management businesses.

What happens next

The legal challenge puts the application of the scheme to captive lenders under scrutiny, alongside the lenders’ objection to its assumptions about customer losses. The disclosure dispute concerns whether challengers should receive further material on how the FCA reached its decisions.

For Volkswagen Financial Services UK, the accounts recognise an expected compensation cost rather than a completed payout. The £725m has been provided against the FCA’s published framework even as the company contests elements of that framework.