The Financial Conduct Authority (FCA) said the move is expected to save drivers £165m a year.

It found that the “widespread use of this type of commission creates an incentive for brokers to act against customers’ interests”.

The FCA said the ban would give lenders more control over the prices customers pay for their motor finance.

The news comes after the FCA found in March that some customers who take out a loan to buy a car are being overcharged by more than £1,000 by brokers.

The regulator is consulting on the new rules until 15 January 2020 and plans to publish final rules later in 2020.

Christopher Woolard, executive director of strategy and competition at the FCA said: “We have seen evidence that customers are losing out due to the way in which some lenders are rewarding those who sell motor finance. By banning this type of commission, we believe we will see increased competition in the market which will ultimately save customers money.”

Adrian Dally, head of motor finance at the Finance & Leasing Association, said: “Today’s announcement is good news for the industry and consumers, as it delivers clear rules and a consistent approach to commissions.  Many lenders have already moved to the commission models that the FCA is proposing.”

Separately, the FCA is also proposing to make changes to the way in which customers are told about the commission they are paying to ensure that they receive more relevant information. These changes would apply to many types of credit brokers and not just those selling motor finance.