Britain’s financial watchdog has announced a ban on a specific way car dealers and motor finance brokers charge commission to customers.
The Financial Conduct Authority (FCA) said on Tuesday it was banning discretionary commission models in the car market.
Discretionary commission models link a car seller or motor finance broker’s commission to the interest paid by customers on their car financing deals. The model creates an incentive for salespeople to give customers a bad deal on credit when buying a car.
“By banning this type of commission, where brokers are rewarded for charging consumers higher rates, we will increase competition and protect consumers,” the FCA’s interim chief executive Chris Woolard said in a statement. “We estimate that consumers could save £165m ($212m) because of today’s action.”
The ban will come into force on 28 January 2021. The FCA said the long lead time for the rule changes reflected “the additional operational pressures which the sector is facing” as a result of the COVID-19 pandemic.
Car dealers and motor finance companies will also be forced to clearly disclose commission structures for sales people. A review of the market by the FCA found many customers were unaware that their dealers were being paid a commission for arranging motor finance.
The FCA first began looking at the motor finance market in 2017 and announced plans to introduce a ban on discretionary commission last year.