UK regulatory body The Financial Conduct Authority (FCA) announced on Tuesday that it is planning to ban the awarding of commission on the basis of interest rates paid by customers, in the motor finance sector.
Currently, car retailers and other motor finance brokers earn commission which corresponds to the interest rates they can get their customers to agree to paying. As part of this practice, brokers are able to set the interest rate on motor-related transactions. The FCA have found that this practice,
‘creates an incentive for brokers to act against customers’ interests.’
Making this change will not only remove this incentive for motor brokers, it will give lenders more control over the prices customers pay for their motor finance, and will save customers an estimated £165 million per year.
FCA Comments
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 regulator’s statement concluded by saying,
“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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