Personal debt experts have welcomed the news that the Financial Conduct Authority (FCA) has decided to ban commission structures that incentivise car retailers to sell high-interest finance deals to their customers.
The FCA says that introducing a ban on what it refers to as ‘motor finance discretionary commission models’ will save consumers across the UK close to £165 million per year.
It is hoped that restricting these practices will serve to better protect car buyers from the somewhat underhand tactics of salespeople who might otherwise have been actively incentivised to sell them expensive credit arrangements.
Plans are in place to see discretionary commission models banned within the car industry by 28 January 2021, with the FCA giving retailers a little extra time to comply with the new rules in light of the “additional operational pressures” the sector is currently dealing with in terms of coping with Covid-19 and the need for social distancing.
“By banning this type of commission, where brokers are rewarded for charging consumers higher rates, we will increase competition and protect consumers,” said Christopher Woolard, the FCA’s interim chief executive.
For its part, the charity group Citizens Advice Scotland (CAS) and its representatives have been quick to welcome a change in regulatory policy that they insist will establish greater transparency in the industry and introduce valuable extra protections for the many thousands of people who buy new cars each year with the help of finance deals.
“The fact that some car dealers increase consumers’ interest rates just so they themselves can benefit from a commission bump is outrageous,” said Myles Fitt, CAS’ financial health spokesperson.
“As motor finance options are on the up through schemes like contract purchases this is the time to make sure consumers are adequately protected against these conflicts of interest,” he added.
“As Scotland’s consumer champion, Citizens Advice Scotland welcomes the steps being taken by the FCA.”
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