Financial watchdog to crack down on £300m car credit overcharging
Car dealers are overcharging consumers buying vehicles on credit by more than £1,000 on their interest payments to pocket a higher commission, Britain’s financial watchdog has found.
The Financial Conduct Authority (FCA) said it is considering changes to the way in which commission works after uncovering “serious concerns” about the way lenders are choosing to reward car retailers and other credit brokers.
It found that the widespread use of commission models, which allow brokers discretion to set the customer interest rate and thus earn higher commission, can 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 said, and is costing car buyers more than £1,000 a year, or £300 million collectively.
Jonathan Davidson, the regulator’s executive director of supervision, said: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves.
“We estimate this could be costing consumers £300 million 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 meet 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.”
The FCA is assessing its options for intervening in the market, including strengthening existing rules or other steps such as banning certain types of commission model or limiting broker discretion.