Motor finance shake-up to save car buyers £165m a year
15 October 2019, 07:51 | Updated: 15 October 2019, 09:16
Car buyers are expected to save £165m a year under plans by the City watchdog to ban certain types of commission paid by lenders to motor dealers and finance brokers.
The proposals by the Financial Conduct Authority (FCA) relate to the way customers take out loans when buying new vehicles.
Some dealers and other brokers selling these finance packages receive a commission linked to the interest rate that customers pay.
The FCA has previously found that the widespread use of this model creates an incentive for the brokers to act against customers' interests.
It said banning this type of commission would remove the financial incentive for those selling the car finance to increase the interest that the customer pays.
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."
The FCA also plans changes to the way customers are told about commissions being paid to the brokers who are selling them loans - both in motor finance and other areas of credit.
It is consulting on the proposals until 15 January and will publish final rules later in 2020.
Earlier this year, the FCA found that some car dealers were overcharging motorists more than £1,000 in interest in order to obtain bigger commission payouts - costing consumers an estimated £300m annually.
The actions announced today will not go all the way to solving that problem.
That is because it is expected that brokers will instead move to a flat fee system, where they will still receive a commission but that this will not vary depending on the interest rate on the car finance package they sell.
(c) Sky News 2019: Motor finance shake-up to save car buyers £165m a year