FCA to clamp down on motor finance

The Financial Conduct Authority is considering changing the rules governing car financing, after it discovered that customers are potentially being overcharged by as much as £300m a year.

The watchdog, which has carried out a review of motor finance, said it had uncovered “serious concerns” about the way in which lenders are choosing to reward car retailers and other credit brokers.

It said that the widespread use of commission models – which gives brokers discretion to set interest rates – could lead to “conflicts of interest which are not controlled adequately by lenders. This can lead to customers paying significantly more for their motor finance.”

The FCA is therefore now looking at ways to better protect the customers. These could include strengthening existing rules or even banning specific types of commission, it said.

Jonathan Davidson, executive director of supervision, retail and authorisations, at the FCA, added: “We found that some motor dealers are overcharging unsuspecting customers over £1,000 in interest charges in order to obtain bigger commission pay-outs for themselves. We estimate this could be costing customers £300m annually.

“This is unacceptable and we will act to address harm caused by this business model.

“We also have concerns that firms may be failing to meeting their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”