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

Unfair car commission model banned from today

0
Written by:
28/01/2021
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.

Seven ways to get help with energy bills this winter

We knew today’s announcement was going to be painful, but it’s still a shock to the system. When this kick...

Flight cancelled or delayed? Your rights explained

With no sign of the problems in UK aviation easing over the peak summer period, many will worry whether holida...

Rail strikes: Your travel and refund rights

Thousands of railway workers will strike across three days this week, grinding much of the transport system to...

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.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week