28 July 2020

Discretionary commission models will be banned by the Financial Conduct Authority from 28 January 2021. The FCA has also issued revised commission disclosure rules.

The ruling follows a consultation by the FCA in October last year.

Currently, some car retailers receive commission which is linked to the interest rate that customers pay – creating an incentive to sell more expensive credit to some customers, the FCA claims.

An FCA spokesman said: “The broker can effectively set the interest rate and the FCA found that the widespread use of this type of commission creates an incentive for brokers to act against customers’ interests.”

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.

“We estimate that consumers could save £165 million because of today’s action.”

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 will also come into force on 28 January 2021.

Commenting on the FCA’s announcement 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, NFDA director, added: “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.

“Franchised dealers are committed to providing clarity to their customers and NFDA supports appropriate measures that are of benefit to consumers.

“We will now be looking at the policy statement in detail to understand the full implications for the sector and continue to liaise with FCA and our franchised dealer members going forward.”

Full details are available on the FCA website.

Tags: discretionary commission, FCA, finance