15 Oct 2019
FCA’s Crackdown on Car Finance Could Save Drivers £165m
The Financial Conduct Authority is aiming to crack down on how dealers and brokers sell car finance, in a move that could potentially save drivers £165m.
The regulator has taken issue with the way some dealers, and associated brokers, earn commission based on car finance interest rates. The dealers in question can set their own interest rates for customers and then earn more commission for higher rates.
These practices, which the FCA is hoping to ban, are thought to encourage such dealers and brokers to “act against customers’ interests”. In fact, a recent report published by the financial regulator showed that these practices cost drivers millions of pounds every year. Furthermore, customers are rarely informed about dealer commission structures when taking out a car loan.
Christopher Woolard, Executive Director of Strategy and Competition for the FCA, has explained the reasoning behind the proposed crackdown:
“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 authority also wants to ensure that customers receive more information regarding commission from lenders and, according to the FCA, not just in the motor industry.
While the changes proposed by the regulator are a step in the right direction, it is feared that the problem will not be fully solved. Instead, dealers will still have financial incentives to sell loans in the form of commission based on flat fees.
If this were the case, customers are still likely to see the benefits. Woolard says:
“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.”
The FCA will now engage in consultations on this matter until 15 January 2020, with the final rules being published later in the same year.