Well, now that the OP has informed me, via a private message, that the car has an extended warranty, my attitude has changed a bit. While the dealership may be able to get away with charging a diagnostic fee, they shouldn't be charging anything for repairing the car. And, under the circumstances, the dealership is the appropriate place to take the vehicle.
I suggest that the OP contact VW of America (toll-free phone number can be found in the Owner's Manual), and ask to have the regional service supervisor inspect the car when he/she is next at the dealership. At that time, you can speak with him/her and impress that person with the seriousness of the situation. In my experience, these people have the ability to convince recalcitrant dealerships to make stronger efforts to resolve customer problems. And, since VW dealers are consistently rated the lowest in customer satisfaction, this dealership probably needs someone in authority to kick them in the keister in order for them to properly deal with this safety hazard.