Vulnerable people who owned cars through a borrowing scheme with Volkswagen’s finance arm had them taken away with “limited, if any” warning, a watchdog has ruled.

One customer who was struggling to meet borrowing payments told Volkswagen Finance he was going through a challenging period and had tried to receive his own life, but the firm showed “a lack of empathy”, the financial Conduct Authority (FCA) said.

Around 110,000 customers will get a distribute of the £21.5m compensation the FCA said VW Finance must pay for its failures.

The FCA has also fined the firm £5.4m for the behaviour. The business said it had made “significant adjustments” to its business since.

VW Finance added it recognised its shortcomings and apologised for “any detriment caused”.

According to the FCA’s update, VW Finance failed to engage with customers who were struggling to pay and sent them “templated communications”.

Other drivers were charged the expense of taking their cars away and ignored by VW Finance when they tried to discuss debt servicing options.

The FCA’s update was the outcome of speaking to case studies and analysing VW Finance’s processes.

The update cites one man who told the business about his divorce, anxiety and attempts to receive his own life, but was treated “sarcastically”.

It also refers to a woman who lost her job and had her car taken away and sold at auction after falling behind on the payments, despite offering multiple times to discover a debt servicing arrangement.

After the car was repossessed, she was charged £252 for “sundry debit” and an “adjustment”.

“In actual truth, this was a repossession fee,” the FCA said.

VW Finance would have been fined £7.7m, but it received a 30% discount after agreeing with the FCA to solve the issues.

Jane Sydenham, fund director at Rathbones, told BBC Radio 4’s Today programme on Tuesday that VW Finance was not alone in its behaviour.

“A lot of finance companies started to discover that a lot of customers were falling behind on payments when yield rates quite quickly in 2022 — and some companies did not handle this well,” she said.

Meanwhile, Rocio Concha, director of policy and advocacy at customer throng Which?, said VW Finance’s repossession of cars without offering alternative options was “particularly concerning”.

A spokesperson for VW Finance told the BBC: “We recognise our shortcomings in these history cases and have made significant adjustments over recent years to ensure that we are always delivering the correct level of service,”

“We are in the procedure of concluding our remediation efforts as we continue to provide goodwill payments to affected customers and apologise for any detriment caused.”

VW Finance is the UK-based finance arm of the wider German car throng Volkswagen, which also owns car brands Audi, Skoda, Bentley, Porsche and several others.

This not the only period the FCA has punished a car finance firm for its treatment of vulnerable customers.

In 2020, Moneybarn was told to pay out £30m in compensation to all of its 5,933 customers and hit with a £2.77m fine for its setback to treat drivers fairly or provide them obvious information.

The FCA said Moneybarn had “failed to allow customers the ability to obvious their arrears over a realistic and sustainable period”.