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By Huw Jones
LONDON, Oct 14 (Reuters) - Britain's markets watchdog has
proposed banning auto dealers and brokers from receiving
commission linked to interest rates on loans used to finance car
purchases, a step it said would save consumers 165 million
pounds ($208.4 million) annually.
The Financial Conduct Authority (FCA) said some motor
finance brokers receive commission linked to the interest rate
that customers pay.
"The broker can set that rate and the FCA found that the
widespread use of this type of commission creates an incentive
for brokers to act against customers' interests," the FCA said
in a statement on Tuesday.
The Finance & Leasing Association (FLA) said the FCA's
proposals would deliver clear rules and a consistent approach to
commissions.
"Many lenders have already moved to the commission models
that the FCA is proposing," said Adrian Dally, the FLA's head of
motor finance.
The National Franchised Dealers Association said rules
should be proportionate so there is a satisfactory outcome for
both consumers and retailers, while consultants PwC cautioned
that the crackdown could lead to higher flat fee commission
payments.
Using models to compare discretionary commission and flat
fee models of financing, the FCA estimated that 924,000
customers were paying in total around 500 million pounds in
additional interest costs.
Banning this type of commission would remove an incentive
for brokers to bump up the interest rate that customers pay and
give lenders more control over the prices customers pay for
their motor finance, the watchdog said.
"By banning this type of commission, we believe we will see
increased competition in the market which will ultimately save
customers money," said Christopher Woolard, the FCA's executive
director of strategy and competition.
Shares of motor retailer Pendragon, which jumped 10%
on Monday, were up 1.3% in early trading. Auto Trader
gained 1%.
"Given the largest commissions received by brokers tend to
come via the models set to be banned, it will be interesting to
see how lenders, brokers and dealerships react," said Sarah
Nield, financial services risk and regulation director at PwC.
The FCA is also proposing changes to commission disclosure
rules and guidance to give consumers more relevant information
in all consumer credit markets.
The watchdog will consult on the rules until January 2020
and publish final rules later next year.
It estimates it would cost the industry 35 million pounds to
implement the ban in the first year, and 5 million pounds
annually thereafter.
($1 = 0.7920 pounds)
(Reporting by Huw Jones, editing by Sinead Cruise and Kirsten
Donovan)
