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FCA bans discretionary commission models

By / 2 months ago / Latest News / No Comments

The Financial Conduct Authority (FCA) has today banned discretionary commission for car retailers and motor finance brokers.

Christopher Woolard, the FCA’s interim chief executive

Christopher Woolard, the FCA’s interim chief executive

The FCA says that some car retailers and motor finance brokers receive commission linked to the interest rate that customers pay – creating an incentive to sell more expensive credit to some customers and resulting in the broker setting the interest rate which went against customer interests.

The FCA estimates that the ban on discretionary commission, which is due to come into force on 28 January 2021, will 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, the FCA added.

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 also come into force on 28 January 2021.

Adrian Dally, head of Motor Finance at the FLA said: “This is a welcome announcement from the FCA as it provides clarity for the industry.  We are also pleased that the regulator accepted our point about the need to monitor the consumer hire market as the ban on discretionary commissions does not extend to personal contract hire agreements.”

Sue Robinson, director of the National Franchised Dealers Association (NFDA), which represents franchised car and commercial vehicle retailers in the UK commented: “It is positive that the FCA has agreed to a six-month implementation period for the ban on discretionary commission modes, rather than the originally proposed 3-month, in line with NFDA’s previous lobbying calls.”

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Jonathan Musk

Jonathan turned to motoring journalism in 2013 having founded, edited and produced Autovolt - one of the UK's leading electric car publications. He has also written and produced books on both Ferrari and Hispano-Suiza, while working as an international graphic designer for the past 15 years. As the automotive industry moves towards electrification, Jonathan brings a near-unrivalled knowledge of EVs and hybrids to Fleet World Group.