FCA publishes consultation CP19/28 Discretionary commission models and disclosure in motor finance

Regulatory Updates | 15/10/19

The Financial Conduct Authority (FCA) has published consultation paper CP19/28 Discretionary commission models and disclosure in motor finance. In its final report on motor finance published in March 2019 the FCA found widespread use of commission models that link brokers’ commission to the interest rate charged to the customer, leading to higher interest payments for customers and conflicts of interest. To address these harms the FCA makes the following proposals:
• a prohibition on any arrangement for motor finance, whereby the lender allows a credit broker decide or negotiate the amount included in the total charge for credit and the amount of commission, fee or financial arrangement which is payable to the credit broker. The definition is wider than difference in interest rate, as it covers any other element which would be added to the total cost of credit which would be payable to the lender.
• a ban to apply to Increasing and Reducing Difference in Charges (DiC) and scaled commission models.
However, any accrued commission earned prior to the rule coming into force can still be paid and brokers would still be able to earn commissions from fixed fees or variable commission models that are not dependant on the interest rate. The FCA is also proposing to make changes to the way in which customers are told about the commission they are paying to ensure that they receive more relevant information. The latter proposals would apply to many types of credit brokers and not just those selling motor finance.
The consultation is open until 15 January 2020, and the FCA plans to publish final rules later in 2020.