Car dealerships, and other brokers of motor-finance packages, will be banned from receiving commission tied to the interest paid by customers under plans revealed by the UK’s financial regulator in an attempt to save consumers as much as £165m a year.
The Financial Conduct Authority said on Tuesday it would ban interest-linked commission in the motor-finance sector after seeing evidence that many in the sector are incentivised to jack up interest rates, acting against customers’ best interests.
The car-dealership sector is already facing various headwinds, including falling sales and increasing competition from internet-based sales.
Christopher Woolard, the FCA’s executive director of strategy and competition, 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 FCA’s action comes after an increase in car finance agreements in the UK, which rose from 1.2m in 2008, to 2.3m in 2016, enabling British consumers to borrow a record £31bn. That caught the attention of regulators and the Bank of England, which was worried about customers who use payment plans being vulnerable to shocks including a fall in car prices.
The FCA also launched an investigation in July into Lookers, the UK’s largest dealer, over its sales processes between January 2016 and June this year. That probe continues.
The FCA is consulting on the rules until January. Credit brokers are more widely being forced to give customers more information about commission they receive.
