Drivers to Save £165m a Year from Car Finance Crackdown
Motorists in the UK could save a total of £165 million each year after the Financial Conduct Authority announced it was cracking down on the car finance industry.
The FCA has set out its plans to ban certain types of sales commission made by car dealers and brokers. According to the regulator of the UK’s financial industry, some dealers and brokers are making commission based on a car finance loan’s interest rate – which they set themselves. Generally, the higher the interest rate, then the higher the commission. This ‘creates an incentive for brokers to act against customers’ interests’, said the FCA.
“We have seen evidence that customers are losing out due to the way in which some lenders are rewarding those who sell motor finance,” said Christopher Woolard, executive director of strategy and competition at the FCA. “By banning this type of commission, we believe we will see increased competition in the market which will ultimately save customers money.”
The regulator also said it wants dealers and brokers to be more transparent with their customers as to how much of what they’re paying is going towards commission. The FCA will consult the proposals until January 15, and any new rules will come into force by the end of 2020.
In March earlier this year, the FCA warned the car finance sector over the issue surrounding commission-based practices. It launched a review into the industry after it was revealed the number of car finance deals in the UK rose from 1.2 million in 2008 up to 2.3 million in 2017.
“The FCA has concluded, quite rightly, that there is no inherent problem with car finance products themselves,” said James Fairclough, chief executive of AA Cars. “However customers are poorly served if they are not shown all the options best suited to them, whether through a lack of transparency, deliberate misinformation or because brokers are trying to steer them toward a particular product purely in order to secure a discretionary commission.
“Transparency and clarity are essential for the car finance industry to serve customers properly, and the FCA’s proposal would make it easier for car buyers to compare different deals and shop around. It could also bring the price of finance down if it triggers greater competition on interest rates between lenders and removes the distorting effect of discretionary broker commission.”