FCA cracks down on car finance to ‘save drivers £165m’

Tuesday, October 15, 2019 - 08:29
Comments off

The Financial Conduct Authority (FCA) has said that it wants to ban the way some car dealers and brokers make commission on car sales. Presently, dealers can set their own interest rate on car loans and can then draw commission on that interest. The FCA estimates that drivers are losing out by as much as £1,250 over the lifetime of the loan.

The FCA said this “creates an incentive for brokers to act against customers’ interests”.

“We have seen evidence that customers are losing out due to the way in which some lenders are rewarding those who sell motor finance,” said Christopher Woolard, executive director of strategy and competition at the FCA.

“By banning this type of commission, we believe we will see increased competition in the market which will ultimately save customers money.”

The FCA said that it was proposing changes to ensure customers receive all relevant information with regard to commission.

It said: “These changes would apply to many types of credit brokers and not just those selling motor finance.”

The FCA will now consult on the proposals until 15 January next year and plans to publish final rules later in 2020.

In March 2019, the FCA reported that by allowing dealers to set their own interest rates, it was costing motorists millions of pounds a year. At the time, the regulator said its aim was to “eliminate the harm caused by discretionary commission models”.

It said: “We have found a significant difference in the amount of interest customers pay when taking a motor finance deal arranged through a broker who benefits from a discretionary commission model compared to a flat fee model.”

Sue Robinson, Director National Franchised Dealer Association (NFDA), said: “Franchised vehicle retailers are committed to helping and providing clarity to the consumer. Clear rules are positive for the industry but we would urge that they are proportionate so there is a satisfactory outcome for both consumers and dealers.  NFDA will be responding in depth to the consultation”.

Commenting on the Financial Conduct Authority’s publication today of a consultation on discretionary commission models, Adrian Dally, Head of Motor Finance at the FLA, 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.”

Comments are closed.