The Financial Conduct Authority (FCA), the UK’s financial regulator, has announced a crackdown on the car financing industry, saving drivers £165 million.
The regulator intends to ban the manner in which car dealers make a commission on sales, with some dealers making a commission on the interest rate of the loan, which is set by them.
As a result, some retailers take a commission on the interest rate that they charge customers who take out a loan through car financing, which means that the higher the interest rate, the more commission they make.
The watchdog is also proposing changes to how customers receive information about the commission they pay, stating that this is “to ensure that they (customers) receive more relevant information).
A report by the regulator recently found that the car industry’s system of allowing dealers to set their own interest rates was costing consumers millions of pounds per year, with only a small minority of brokers informing customers of the commission they would make on the loan.
Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority, 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 will consult on the proposals until 15 January 2020, with final rules set to be published in the second half of 2020.