Drivers to save £1,100 each after crackdown on car finance commissions

Drivers will save around £165m a year under a crackdown on certain types of commission that give salesmen and brokers an incentive to overcharge customers.

The financial watchdog is proposing a ban on commission linked to the interest rate customers pay on their motor finance.

This encourages salesmen and brokers to bump up the interest rate in order to boost their own commission, the Financial Conduct Authority (FCA) said.

On a typical £10,000 car loan, this type of commission results in customers paying around £1,100 in extra inter over a four-year term. Two thirds all car finance lending in 2017 was sold with this type of commission, up from just over one third in 2008.

Scrapping it would end the inherent conflict of interest for brokers and encourage them to act in their customers’ interests, the regulator said.

Christopher Woolard, executive director of strategy and competition at the FCA, commented: “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 proposals come more than two years after the FCA launched a review into car financing in response to concerns about questionable practices in the sector.

It will consult on the plans until 15 January, with final rules set to be published later in 2020.

The FCA warned the sector in March to clean up its act amid concerns over the commission charged on car finance plans for new cars.

Scott Cargill, chief executive of Admiral Financial Services, said: “The announcement from the FCA today will be welcome news to anyone buying a car from a dealership. For far too long, there has been a lack of transparency around how some car dealers make commission on sales. This has resulted in some customers overpaying for their loans by millions of pounds a year, but not really having any real idea by how much. 

“Now the FCA has shone a light on some of the shady ways commission is made, we expect to see more competition in the market and better deals for consumers.” 

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