Regulator to ban interest rate-linked car finance commission
The financial regulator has announced it will ban commission models that give car finance dealers an incentive to raise customers' costs from next year.
At the moment, some car retailers and brokers receive commission which is linked to the interest rate that customers pay on their motor finance.
As brokers can effectively set the interest rate for customers, the Financial Conduct Authority (FCA) says this creates a financial incentive to act against customers' interests and sell more expensive credit to some customers.
And it's now announced it will ban the practice from 28 January 2021, giving firms extra time to implement its rules. The FCA estimates the ban will save customers £165 million a year.
At the same time, it will make minor changes to its guidelines on how customers are told about the commission they're paying – which it says will make consumers more likely to receive appropriate and timely information on interest charges and commission.
What does the FCA say?
FCA interim chief executive Christopher Woolard said: "By banning this type of commission, where brokers are rewarded for charging consumers higher rates, we will increase competition and protect consumers.
"We estimate that consumers could save £165 million because of today's action."