Motor Finance Commission Scheme – Proposed Ban

The FCA has identified that discretionary commission models have led to higher finance costs for consumers and is now seeking to ban such commission models and make amendments to existing rules and guidance in relation to the disclosure of commission arrangements.

30 October 2019

What are the changes?

  • The FCA is looking to ban certain commission models in the motor finance market which allow brokers the discretion to earn more commission by inflating the customer’s interest rate.
  • These “discretionary commission models” could be costing customers up to an additional £300m a year as opposed to flat fee commission models.
  • Under the proposed ban, brokers would still be able to earn commissions from fixed fees or variable commission models that are not dependant on the interest rate.
  • The scope of the commission models ban is only motor finance market while the scope of changes to commission disclosure rules is the consumer credit market of most types of brokers.

Why are they important?

  • The proposed ban is supplemented with improved disclosure rules and if the FCA moves forward this will create fundamental changes across the car finance market.
  • The proposed changes will improve competition in the market as well as raise consumer awareness to allow for better decision making – which are in line with the FCA’s core principles.
  • Should the FCA move forward, firms will only have 3 months to implement the proposed ban on the commission models from the day the new rules are finalised.
  • Six months after the proposed rules are in force, the FCA will monitor a sample of firms to ensure compliance.

What do you need to do?

  • Any feedback to the Consultation Paper must be received by the FCA no later than 15th January 2020. 
  • Subject to feedback to the consultation paper, the rules are targeted to be finalised at the beginning of Q2 2020.
  • Firms should seek to review the commission structures they have in place.
  • Where discretionary commission schemes are in place, firms should seek to determine if adequate controls were in place to reduce the risk of customer detriment.
  • Flat fee commission schemes will need to be devised and communicated to brokers and appointed representatives/agent. This may require amendment or renewal of Service Level Agreements.
  • The controls in place in respect of  ongoing oversight and monitoring over brokers or appointed representatives should also be reviewed to ensure firms can demonstrate compliance
  • Our Financial Services Consulting team can address any questions or queries you may have, so please feel free to get in touch.