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FCA consults on banning some car finance commission models

The Financial Conduct Authority (FCA) has announced plans to ban the way 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, with the broker often setting the rate.


The FCA said that model can cause harm to the consumer and estimates its proposed changes could save customers £165m per year.


It added that preventing 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.


In its 60-page announcement, the regulator said it does not expect any major unintended consequences for lenders or brokers.


Instead, it said brokers can earn commission from fixed-fee or variable commission models.


It’s also putting forward changes to commission disclosure rules. These changes, it said, would apply to many types of credit brokers and not just those selling 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 new drew a variety of responses from delegates at the Car Finance Regulation & Development Forum, with the overriding message that the sector would be able to absorb and adapt to the changes in the mid-to-long term.


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.

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