FCA to ban discretionary commission models in Motor Finance

On a separate but related note, the FCA’s October 2019 report has proposed a ban on commission models within the motor finance industry where the amount received by the broker is linked to the interest rate paid by the customer where the broker has the power to set or adjust this interest rate.

The FCA refers to these as “discretionary commission models”, which have a number of variations, but in essence the empirical evidence unearthed by the FCA’s enquiries strongly suggest that these discretionary commission models significantly disadvantaged customers compared to flat fee models of remuneration. The ban will be limited to regulated consumer credit agreements and will not extend to consumer hire.

The FCA aims to finalise its rules at the beginning of Q2 this year and firms will then have a three month period to implement the proposed ban on discretionary commission models.