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Unfair car commission model banned from today

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Car buyers are due to save £165m a year as a clampdown on discretionary commission comes into force today.

Up until today, car dealers and motor finance brokers have been able to receive a type of commission which was linked to the interest rate customers paid.

With brokers effectively able to set the interest rate, this created an incentive to sell more expensive credit to some customers as they were rewarded with higher commission.

A consultation launched by the regulator, the Financial Conduct Authority in October 2019 then led to plans announced in July to ban this discretionary commission model to increase competition and protect consumers.

At the time, the FCA estimated the move would save customers £165m a year and said preventing the use of this type of commission would remove the financial incentive for brokers to increase the interest rate that a customer pays and give lenders more control over the prices customers pay for their motor finance.

The changes have come into effect today and also apply to other types of credit brokers, not just those selling motor finance.

‘Complete transparency around the commission a dealer is earning’

Seán Kemple, managing director of Close Brothers Motor Finance, said: “For consumers, there’s a lot to think about when buying a car this year. The economy has been hit hard by Covid-19 and Brexit, and at the same time we’ve seen changing regulation around fuel type and congestion. Private car ownership has also become more appealing, with reticence around public transport and a fall in company cars. And we have seen the numbers of cars bought on finance rise significantly.

“That’s why it’s really positive that the FCA is again focused on supporting customers. Commission works well across a variety of industries which involve products being sold via intermediaries, including mortgages, pensions, and insurance. The new changes to motor finance will ensure that the interest rate people pay on their finance agreement is based on their own individual circumstances, and that there is complete transparency around the commission a dealer is earning. This means customers can be confident in their judgement of the impartiality of a dealer before they make a decision about how to fund their vehicle purchase.”

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