Dealers Have Three Months To Respond To FCA Plan
- October 15, 2019
- Posted by: John Swift
- Category: Automotive Industry
Dealers have been given three months by the Financial Conduct Authority to make their views known on a planned overhaul of how interest rates on car finance are set and how they earn their commission on them.
Discretionary commission where the dealer negotiates a higher interest rate to the customer than the one set by the finance provider and gets a bonus for it as a result has long been a source of complaint from consumer groups.
The FCA has now issued policy document CP19/28 which says
“We are consulting on plans to ban commission models that give motor finance brokers/dealers an incentive to raise customers’ interest rates. We are also consulting on minor changes to some of our rules and guidance to ensure that many types of credit broker give consumers more relevant information about commission.”
Used car retailers have until January 15 to send the FCA their opinions and reasons for them. Once the consultation period has closed the FCA will consider views from the trade before issuing a policy statement in Q2 next year which will be binding on dealers and finance providers. It has already said that it wants a much more consumer-friendly process of selling and financing both new and second-hand cars.
This week’s move comes at the end of a long-running investigation into the allegation that the current commission system can encourage dealers to sell higher interest rates to a customer when they buy the car but that the details can be overly complex, confusing and not clear to the purchaser. The result is that customers are being overcharged to the tune of millions of pounds a year.
In March this year, it published the findings of its investigation which concluded that there is a widespread use of commission models that link dealers’ commission from the finance provider to the interest rate charged to the customer leading them to set it as high as possible.