Going into reverse on car finance commissions

The FCA’s recently-released consultation paper CP19/28 contains a ban on discretionary commissions in motor finance deals, as well as amendments to enhance disclosure of financial arrangements and associated risks to buyers. The culmination of an industry review, the proposals are an attempt to bring greater awareness of customer outcomes and healthy sales culture to an industry that is unaccustomed to regulatory intervention. Yasin Sridhar considers the wider implications of FCA plans for the motor finance industry.

Yasin Sridhar (yasinsridhar@konexoglobal.com) is a regulatory director at Konexo, a division of law firm Eversheds Sutherland that is responsible for advising on regulated activity and compliance operations across financial services.

When the Financial Conduct Authority released its final motor finance findings in March 2019, few would have been surprised by the proposed changes issued a few months later. Discretionary commissions used to remunerate brokers based on the car buyer’s payable interest rate, were deemed to be disadvantageous to the buyer, costing them more than necessary. By ‘necessary’, the FCA said that the interest rates applied were not consistently linked to the credit risk posed by the buyer, meaning that the broker’s power to set the interest rate to profit from arrangements unrelated to the buyer presented a conflict of interest. The most common ‘discretionary commission models’ cited by the FCA were increasing difference in charges (DiC), reducing DiC and scaled commission models. [1]