Car dealers are overcharging consumers who are buying vehicle on credit by over £1,000 on their interest payments, revealed a British financial watchdog.
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 car brokers to use their discretion to set the customer interest rate and earn a higher overall commission.
This is leading to concerns that motorists are being overcharged for their car finance.
In fact, it is estimated that overcharging by dealers and brokers is costing motorists £1,000 a year, totalling a collective £300 million.
Now the FCA is considering revising the system to strengthen the rules to ban or limit certain commission models to help prevent drivers being ripped off.
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.”
Adrian Dally, head of motor finance at the Finance and Leasing Association, said: “Regarding the FCA’s concerns about commission structures, their survey work is based largely on out-of-date information, and therefore does not reflect the very considerable progress the market has already made in moving away from such structures.
“We look forward to working with the FCA as it modernises its regulations in line with market best practice.”
“The FCA has been working on this report for two years and has issued plenty of guidance and recommendations during that period,” said BVRLA Chief Executive, Gerry Keaney.
“Over the same period, the BVRLA and its members have taken a close look at our own industry guidance and best practice, supporting these with a comprehensive training and inspection programme.
“The time for excuses has passed. There is no place in the motor finance sector for companies that are unwilling to embrace the FCA regime and actively demonstrate their compliance.”