Ban on car sellers rewarded for charging high rates

·Senior City Correspondent, Yahoo Finance UK
·1 min read
Cars are parked at a Fiat car dealer in Milan, Italy, Wednesday, July 25, 2018. Sergio Marchionne, a charismatic and demanding CEO who engineered two long-shot corporate turnarounds to save both Fiat and Chrysler from near-certain failure, died Wednesday. He was 66. The holding company of Italian automaker Fiat's founders, the Agnelli family, announced Marchionne had died after complications from surgery in Zurich. At Fiat Chrysler Automobiles headquarters in the Italian town of Turin, flags flew at half-mast, while in Rome the parliamentary committee for labor and finance observed a minute of silence. (AP Photo/Luca Bruno)
Cars are parked at a Fiat car dealer. Photo: AP Photo/Luca Bruno

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.

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