The FCA has announced that it will introduce a ban on discretionary commission models following a consultation in October 2019.
As background, some car retailers and motor finance brokers receive commission which is linked to the interest rate that customers pay – this creates an incentive to sell more expensive credit to some customers, which the FCA see as acting against the customer’s interest.
Therefore, the FCA estimates this ban could save customers £165 million a year. It will also remove the financial incentive for brokers to increase interest rates, and give lenders more control over the prices customers pay for their motor finance.
The ban comes into force on 28 January 2021, to give firms time to implement the new rules.
The FCA are also making changes to the way in which customers will be told about the commission they are paying. These changes will ensure that customers receive more relevant information, and will apply to many types of credit brokers, not just those selling motor finance. These changes come into force on 28 January 2021.