Volkswagen Financial Services UK has reported a £352.9m loss for 2025 after setting aside £725m to cover expected costs under the motor finance redress scheme run by the Financial Conduct Authority (FCA), according to account filings from the company. Without that provision, VWFS said, profitability would have risen, with revenue climbing to £3.41bn from £3.14bn the year before.
The swing from a £110.3m profit in the prior year to a nine-figure loss underlines the scale of the car finance scandal’s financial impact on lenders. VWFS said its provision was calculated using the criteria set out in the FCA‘s policy statement, but it added that those 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.
Volkswagen Financial Services challenges FCA scheme in court
VWFS is not alone in pushing back. The company, along with the finance arm of Mercedes-Benz and CA Auto Finance, has launched a legal challenge to the FCA’s redress scheme, arguing that it imposed an unlawful blanket assumption that most customers suffered a financial loss when their commissions were not clearly disclosed. The case is being heard by the Upper Tribunal (Tax and Chancery Chamber), according to the FCA’s published legal challenge documents.
The group has been blunt about its objections. ‘The VW group supports redress for customers who were genuinely disadvantaged,’ the company said in its accounts, ‘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.’
Adding further complexity, consumer group Consumer Voice has also filed a legal challenge, but from the opposite direction. According to Reuters, Consumer Voice argues that the FCA scheme ‘systematically undercompensates consumers’, meaning the watchdog now faces legal pressure from both lenders and consumer advocates simultaneously.
One practical consequence of these overlapping challenges is a significant delay for affected customers. According to the BBC, no compensation will be paid before 2027 as a result of the ongoing legal proceedings.
The scale of the redress scheme
The FCA estimates that payouts are due on 12.1 million mis-sold car finance deals from an array of lenders, expected to result in total compensation of around £7.5 billion, according to Yahoo Finance UK. In March, the regulator published the final outlines of its scheme, which reduced lenders’ overall bill to just over £9bn from an earlier estimate of £11bn.
The scheme itself follows a tortured legal journey. The Supreme Court partially overturned a landmark ruling on car finance last year, rejecting claims that hidden commissions were automatically unlawful. It did, however, find that one customer’s undisclosed commission had created an ‘unfair relationship’, leaving the door open for the FCA to pursue an industry-wide scheme.
Disclosure row sharpens the dispute
The Volkswagen Financial Services loss disclosure comes as the broader legal battle has grown more acrimonious. City AM revealed that opponents to the scheme have been pressing the FCA to release its communications with the Treasury and the modelling data behind the programme. The regulator’s legal team has described those requests as ‘fishing expeditions’, with FCA counsel stating in documents seen by City AM: ‘The overall impression created by the totality of these disclosure requests is that Volkswagen and CAAF are simply hoping something will turn up.’
Lawyers for VWFS have countered that the regulator’s wish to ‘shield its analysis from proper scrutiny is a serious cause for concern.’
Nikhil Rathi, the boss of the FCA, framed the wider dispute to MPs in pointed terms: ‘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.’
With the Upper Tribunal case ongoing and no payouts expected before 2027, the financial provisions already lodged by lenders, including VWFS’s £725m charge, will sit on balance sheets for some time yet.
