Volkswagen Financial Services (UK) Ltd. has made a £725 million ($960 million) provision to cover the costs of compensating British customers who were overcharged for car loans. It is the first time the UK financing arm of Volkswagen AG has disclosed the expected hit in its accounts filed at Companies House. The Financial Conduct Authority's £7.5 billion plan to compensate customers was partially suspended in July following legal challenges from motor finance units including VW. That decision added uncertainty over the implementation of the plan for lenders to compensate consumers for missold car finance dating back to 2007. The payout plan included a further £1.6 billion in costs that companies must bear. "The final outflow could vary materially from the current provision," VWFS said in the accounts. The company has a robust approach to planning for the FCA's proposed redress program, including appropriately provisioning, VWFS said in an emailed statement. It continues to seek independent clarification from the tribunal to ensure the program is lawful, fair and properly targeted.
The announcement adds to the hit taken by German carmakers. In accounts filed last month, BMW's UK unit roughly tripled its provision for compensation to £612 million. It is not just carmakers and their finance arms that are affected. Lloyds Banking Group Plc has made the largest provision at almost £2 billion, while other lenders such as Close Brothers Group Plc have also set aside money. The compensation program prompted South African lender First Rand Ltd. to exit from its UK motor-finance business after estimating it will have to provision £750 million as payouts.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing