Car finance customers overcharged as much as £1,000
The Financial Conduct Authority (FCA) said brokers overcharged car buyers to get larger commissions, costing consumers £300m a year.
The FCA said the current model which allows brokers to set customer interest rates leads to car buyers paying significantly more for their motor finance.
It is assessing the options for intervening in the market to address the harm, which could include banning certain types of commission model.
The regulator launched an investigation into the motor finance industry in 2017 following rapid growth in the use of credit products.
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA said: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves. We estimate this could be costing consumers £300m annually. This is unacceptable and we will act to address harm caused by this business model.
“We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”
The FCA said it will follow up with individual firms but expects all lenders and brokers to review their policies, procedures and controls to ensure they are complying with all relevant regulatory requirements are treating customers fairly.