In a further move to protect consumers (see our previous article on guidance to mitigate the impact of coronavirus here), at the end of July the Financial Conduct Authority (FCA) published policy statement PS20/8 announcing that, from 28 January 2021, there will be a ban on car retailers and motor finance brokers charging commission linked to the levels of interest rate that customers will pay under finance agreements.
The decision followed an open consultation in October 2019 in which the FCA concluded that such schemes were incentivising some retailers and brokers into selling credit packages with very high interest rates.
Not only could this change save consumers £165m per year, but the FCA considers it could also hand greater control over finance packages directly to the lenders. In addition, research conducted by the FCA found that finance providers and credit brokers were also often failing to provide customers with timely information in relation to the commission that is being paid.
Although the changes required to commission disclosure are minor, the FCA believes that they will increase the ability of consumers to make more appropriate decisions regarding how much they are expected to pay under their credit agreements. Interestingly, the changes will apply across all credit sectors and not just motor finance.
Michael Stocks, a managing associate in the dispute resolution practice at Stevens & Bolton, and co-head of the firm’s automotive sector, comments:
“Although the FCA has allowed firms some time to implement these changes it is also clear that, post-implementation, it will be monitoring those that are still reverting to old habits and seeking to charge commission linked to higher rates of interest, or failing to adequately disclose commission information to consumers. Customers affected are likely to have the full support of the FCA behind them in pursuing claims for compensation against firms breaching these guidelines.”
Andrew Dodds, a partner in the banking and finance practice at Stevens & Bolton, comments:
“These changes, whilst not solely applicable to providers of motor finance, illustrate the focus of the FCA on consumer protection. Providing enhanced information to consumers should allow them to make better-informed decisions. The issue for the retailers and brokers, and for lenders, will be ensuring that the information provided is clear and correct, in order to avoid an additional potential source of liability – and perhaps mis-selling claims – in the future.”