8:49 am, March 4, 2019
BRITAIN’S financial watchdog has accused car dealers of overcharging some customers by more than £1000 to boost their commission.
The Financial Conduct Authority (FCA) said it is considering changes to the way in which commission works after uncovering ‘serious concerns’ about the way lenders are choosing to reward car retailers and other credit brokers.
It found that the widespread use of commission models, which allow brokers discretion to set the customer interest rate and thus earn higher commission, can lead to ‘conflicts of interest’ which are not controlled adequately by lenders.
The FCA is assessing its options for intervening in the market, including strengthening existing rules or other steps such as banning certain types of commission model or limiting broker discretion.
This can lead to customers paying significantly more for their motor finance, the FCA said, and is costing car buyers more than £1,000 a year, or £300 million collectively.
Jonathan Davidson, the regulator’s executive director of supervision, 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 £300 million 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.’
Sue Robinson, director of the National Franchised Dealers Association (NFDA), which represents franchised car and commercial vehicle retailers in the UK commented: ‘Franchised retailers are authorised by the FCA and abide by its rules and guidance.
‘Franchised retailers take rigorous steps to be compliant with consumer credit rules and can only offer car finance under strict conditions.
‘NFDA acknowledges the outcome of the FCA’s enquiry into motor finance and urges consumers to visit reputable franchised retailers and shop around before agreeing any finance deals when buying a vehicle. Standards and integrity are vital to the future of our sector.’
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