The Financial Conduct Authority (FCA) has announced plans to ban the way in which some car retailers, and other brokers in the motor finance sector, receive commission.
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 £165 million 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 customers are told about the commission they are paying to ensure that they receive more relevant information. These 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.
Stephen Dawson, financial services sector head at Shoosmiths LLP said: “This consultation doesn’t come as any surprise to the industry – we have been expecting action from the FCA since we sat down with them in recent weeks. Clearly the principal impact will be for both brokers and motor finance providers creating something of a level commission playing field, with the ultimate aim of benefitting consumers.”
Adrian Dally, Head of Motor Finance at the Finance & Leasing Association, said: “Today’s announcement is good news for the industry and consumers, as it delivers clear rules and a consistent approach to commissions. Many lenders have already moved to the commission models that the FCA is proposing.”
Source: ADI News
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