LONDON (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.
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.
The FCA said it was holding a public consultation on the new rules until January 2020 and planned to publish final rules later next year.
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