FCA to ban motor discretionary commission models
The FCA said on Tuesday it would be introducing a ban on discretionary commission models as some car retailers and motor finance brokers potentially sell more expensive credit to customers in order to receive commissions.
According to the FCA, there are many brokers who take advantage of their ability to effectively set the interest rate to act against customers’ interests to receive commission.
The FCA estimates the changes would save customers £165m a year.
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."
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.
The ban applies to motor finance providers and motor finance credit brokers, including motor dealers and comes after the FCA’s consultation in October 2019.
The ban will take effect from 28 January 2021. Firms will need to comply by that date.