Britain’s financial watchdog has said it plans to ban auto dealers from taking commission linked to the interest rates on loans used to pay for cars, which it says would save consumers £165m.
Dealers and brokers that receive interest-linked commission can currently set the rate, causing a strong incentive for them to act against customers’ interests, the Financial Conduct Authority (FCA) said.
The FCA said its proposals to ban this type of commission would reduce this incentive leading to lower costs for customers and greater control for lenders over the prices car-buyers pay.
The watchdog said it will consult on the new rules until January next year and will publish the 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.”
Buying cars with credit has become increasingly popular, leading to worries that individuals are burdened with too high debt levels and are paying over the odds for vehicles.
The FCA has previously found that “some customers are paying significantly more for their motor finance because of the way lenders choose to remunerate their brokers”.
It has also raised concerns “in relation to disclosure of commission, and other pre-contractual disclosure and explanations”. To tackle this, the FCA today said it is proposing to change how customers are told about the commission they are paying, to make sure they receive the most relevant information.
(Image credit: Getty)