You are here: Home - Credit Cards & Loans - News -

Unfair car commission model banned from today

Written by:
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.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

It’s time to get your finances in shape, and moving your cash savings to a higher paying deal is a good plac...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The experts’ guide to sorting out your personal finances in 2021

From opting to ‘low spend’ months to imposing your own ‘cooling-off period’, industry experts reveal t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week