Financial regulators have started a crackdown on the car financing industry. It will, they claim, save motorists around £165 million…
Clamping Down On Commission
The Financial Conduct Authority (FCA) is pushing for a ban on how some brokers and car dealers make commission on their sales. It’s claimed some of them make commission on a loan’s interest rate; something they set themselves. This, according to the FCA, provides them with an incentive “to act against customers’ interests”. In simple terms, the higher the interest rate the higher the commission will be. Christopher Woolard, executive director of strategy and competition at the FCA, explained the reasoning for a ban. He 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”. He added, “by banning this type of commission, we believe we will see increased competition in the market which will ultimately save customers money”.
In addition to the ban, the FCA wants customers to better understand how financing and commission works. In particular, it wants to work to ensure they receive more relevant information and precisely when they need it. It said, “these changes would apply to many types of credit brokers and not just those selling motor finance”. Earlier in the year the organisation discovered that bad practice amongst the car financing industry was costing motorists millions. It also discovered that only a small amount of brokers were informing their customers of the commission they would be receiving as a part of the loan’s arrangements. During the investigation it announced, “we have found a significant difference in the amount of interest customers pay when taking a motor finance deal arranged through a broker who benefits from a discretionary commission model compared to a flat fee model.”
Adrian Dally, head of motor finance at the Finance & Leasing Association, said the clampdown would entail benefits for both customers and the industry. He explained that it was, “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”. The FCA now intends to consult the industry on its proposals until January next year; publishing final rules by the end of 2020.
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