FCA cracks down on car finance commission

The Financial Conduct Authority (FCA) is consulting on new rules for discretionary commission models, after research in the motor finance market revealed the potential for annual savings of £165m for consumers through changes to the way brokers are paid


The regulator wants to ban the way in which some car retailers, and other brokers in the motor finance sector, receive commission following an investigation into this market. This involved a sample of around 1,000 motor finance transactions from 20 lenders representing about 60% of the market. These transactions covered January 2017 to July 2018 and represented a range of customers with different credit risk profiles, as well as a range of brokers.

Currently, some motor finance brokers receive commission which is linked to the interest rate that customers pay. The broker can set that rate and the FCA found that the widespread use of this type of commission creates an incentive for brokers to act against customers’ interests. The FCA estimates the changes would save customers £165m a year.

Preventing the use of this type of commission would remove the financial incentive for brokers to increase the interest rate that a customer pays and give lenders more control over the prices customers pay for their motor finance. 

Christopher Woolard, executive director of strategy and competition at the FCA said: ‘We have seen evidence that customers are losing out due to the way in which some lenders are rewarding those who sell motor finance. By banning this type of commission, we believe we will see increased competition in the market which will ultimately save customers money.’

The FCA is also proposing to make changes to the way in which customer's are told about the commission they are paying to ensure that they receive more relevant information. These disclosure changes would apply to many types of credit brokers and not just those selling motor finance.

The FCA is consulting on the new rules until 15 January 2020 and plans to publish final rules later in 2020.

CP19/28: Discretionary commission models and disclosure in motor finance is here.

By Pat Sweet

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