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How the FCA ban on discretionary commission models has affected the motor finance market

Sponsored: Darren Selig, founder and chief commercial officer of high-end vehicle finance lender JBR Capital, examines the implications of one of the most significant changes the motor finance industry has seen in the past 20 years

Time 4 weeks ago

For most buyers, the purchase of a prestige vehicle is not a decision taken lightly.

Once they’ve spent time tracking down the right car and then committed to considerable financial outlay, they want to feel that the finance deal arranged – often for a minimum of three years – is correct for them.

Over the past year, some considerable changes have been introduced aimed at giving customers a fair deal when it comes to finance. So what’s changed and has it had a positive outcome?


First the changes. On January 28, 2021, the FCA introduced new rules to prohibit the discretionary commission model for regulated credit agreements.

This prevents credit brokers (including car dealers) from being incentivised to set higher interest rates in order to earn more commission.

It also incentivises lenders and credit brokers to create and sell competitively priced loans – and to deliver appropriate and timely information on interest charges and commission, bringing transparency and clarity.

Overall, the changes are designed to ensure customers receive a fair deal and have their costs reduced.

The new legislation has been one of the most significant changes the motor finance industry has seen in the past 20 years.


It broke the link between the commission earned by a broker or dealer and the total interest charges.

It was hoped that this would lead to better arrangements for customers, with deals focused more on product suitability.

For regulated credit agreements, credit brokers are now indifferent to factors such as length of term, setting of balloon payments, etc, as there is no link to remuneration.

The side effect is that their earning capacity has been reduced per transaction – leading to brokers having to find ways to increase their volume of business to maintain a similar level of income as previously experienced.

Has this resulted in a new, more competitively priced finance market then and are consumers getting a better deal?

Well, the new regulation has ensured significant customer benefits.

Because the incentive for brokers to sell high interest rates has been removed, the focus is now on suitable loans.

The ultimate aim of the FCA has been to see financing costs reduced, and while it is still up to lenders to determine what those commission levels are – rates, of course, vary across the market – customers are getting a deal that is a much fairer representation of their own financial circumstances and risk rating.

It may not be the lowest rate but it is much fairer.

For instance, those with a sound financial credit profile are getting a better rate than those who are seen as a higher risk to the lender.

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For customers and JBR Capital, the new regulation really is good news.

It builds on the core principle of TCF (treating customers fairly) and that’s a progressive step, which is positive for the sector.

It also removes that nagging doubt that you could have got a better deal, leaving you to enjoy your new car.

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Car Dealer has been covering the motor trade since 2008 as both a print and digital publication. In 2020 the title went fully digital and now provides daily motoring updates on this website for the car industry. A digital magazine is published once a month.

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