The Financial Conduct Authority has considered whether to force car dealers to tell their customers about the way they earn commission from selling motor finance and the amounts they earn.
But it has decided against it. Although consumers could be affected by the amount of commission involved, the FCA doubts such detail would change their behaviour and it said they would be unlikely to engage with explanations of complex commission models.
But it is still taking action to mandate early disclosure to consumers that the dealer will earn commission from the motor finance they are selling.
“We are concerned that consumers are not being provided with the right information about commissions at the right time,” said the FCA.
“This can limit consumers ability to make informed decisions and, ultimately, choose the deal that is right for them.”
Firms are interpreting its current commission disclosure rules inconsistently, it said, and often disclosure is not early enough in the process to influence a customer’s decision making.
So the FCA plans to clarify CONC 3.7.4G and 4.5.3R “to better reflect our intention that customers receive more relevant information about the existence of commission”.
Depending on the outcome of a industry consultation, between now and January, it will mandate that dealers and brokers disclose the nature of commission in their financial promotions and when making a recommendation.
And it wants to require dealers and brokers to disclose “prominently” whether the commission varies depending on the product, lender or other permissible factor.
“Clarifying these provisions to better reflect their intention should help consumers make better informed decisions, consider alternative options, find a cheaper deal or negotiate on the finance or other costs associated with the deal (eg part exchange values),” said the FCA.
The latest update from the FCA follows on from its publication of the FCA review of motor finance earlier in 2019.
Since the FCA took over regulation of consumer credit many franchised dealers have changed the way they reward their own staff, to provide level incentives across their whole range of regulated products.
>> The FCA's motor finance review and its recommendations will be discussed at this year's Automotive Management Live Finance Theatre, bringing together inspiring keynote speakers from the field of motor finance:
Russell Kelsall, head of consumer & motor finance, TLT LLP; Neil Smith, business operations director, Imperial Car Supermarkets; and Karl Werner, deputy CEO, MotoNovo.