The Financial Conduct Authority has today confirmed
it will introduce a ban on discretionary commission models.
This followed a consultation in October 2019.
Currently, some car retailers and motor finance brokers receive
commission which is linked to the interest rate that customers
pay – creating an incentive to sell more expensive credit to some
customers.
The broker can effectively set the interest 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.
In the light of consultation feedback and the additional
operational pressures which the sector is facing at present the
FCA has agreed to give firms limited additional time to implement
the new rules, with the ban coming into force on 28 January 2021.
Christopher Woolard, the FCA’s Interim Chief Executive, said:
'By banning this type of commission, where brokers are rewarded
for charging consumers higher rates, we will increase competition
and protect consumers.
'We estimate that consumers could save £165 million because of
today’s action.'
The FCA will also 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 disclosure changes apply to many types of credit brokers
and not just those selling motor finance. These changes will also
come into force on 28 January 2021.
