Motor Finance: changes to rules on commission

We have now reviewed FCA Consultation Paper CP19/28 “Motor finance discretionary commission models and consumer credit commission disclosure”. This proposes a number of changes to CONC rules, some of which apply just to the motor finance sector and others of which apply to all sectors. Equally some of the rules changes only apply to regulated credit agreements and others apply to both regulated credit and regulated consumer hire agreements. The consultation period ends on 15th January 2020 and FCA expects to introduce new rules later in 2020.

 

The key features are as follows:

 

– FCA is proposing to ban “discretionary commission arrangements” where the credit broker can decide or negotiate the amount of commission, remuneration or fee earned by the credit broker in relation to a regulated credit agreement to finance the acquisition of a motor vehicle where this would impact on the total charge for credit under the agreement. This will affect agreements where, essentially, the interest rate payable by the customer is linked to the commission earned by the broker. Note this only relates to credit agreements and not hire agreements.

 

– For financial promotions related to credit (but not hire) products, where the commission, fee or other remuneration payable to a credit broker varies due to a factor specified in the arrangement, for example a specific feature of the credit product or the level of work undertaken by the firm, the firm must disclose this in the financial promotion under CONC 3.7.4G(2). If the broker could earn fees, commissions or other remuneration in relation to two or more different credit products and the customer could be eligible for two or more and the commission, fee or remuneration to the broker varies depending on which product the customer takes, the firm must disclose in the financial promotion the fact that the commission, fee or remuneration may vary depending on which product the customer takes.

 

– For both credit and hire products a credit broker must disclose in good time before the contract commences how the existence and nature of any commission, fee or other remuneration may affect the amounts payable by the customer under the relevant credit or hire agreement.

 

– For both credit and hire products where the commission, fee or other remuneration payable to a credit broker varies due to a factor specified in the arrangement, for example a specific feature of the credit product or the level of work undertaken by the firm, the firm must disclose this prominently in good time before the contract commences. If the broker could earn fees, commissions or other remuneration in relation to two or more different credit products and the customer could be eligible for two or more and the commission, fee or remuneration to the broker varies depending on which product the customer takes, the firm must disclose in good time before the contract commences the fact that the commission, fee or remuneration may vary depending on which product the customer takes.

 

As indicated above, this is a Consultation Paper at this stage so no immediate changes are required however credit brokers will need to be prepared to make changes to their disclosure material and, for credit agreements, financial promotions if these draft rules are adopted in 2020.

You can find the full consultation paper here: https://www.fca.org.uk/publication/consultation/cp19-28.pdf .

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