The FCA set out in PS20/8: Motor finance discretionary commission models and consumer credit commission disclosure – feedback on CP19/28 and final rules. The FCA said that;
“We will monitor how well firms comply with the ban on discretionary commission models by carrying out supervisory work across a sample of firms.This work will start in September 2021. It will include looking at what commission models firms are using as an alternative to discretionary commission arrangements, and the ranges of interest rates and commission earnings.”
The rules on motor finance discretionary commission models and consumer credit commission disclosure came into effect on 28th January 2021. The key changes introduced by the new rules were:
1. A ban on lender-to-broker remuneration arrangements where a motor finance broker can decide or negotiate any element in the total charge for credit and is remunerated on that basis. Please note that the discretionary commission model ban does not apply to consumer hire (i.e. broking consumer hire agreements). Reference to ‘bailed or hired’ in the updated CONC provisions refers to hire purchase, which is caught by the ban.
2. All credit brokers (including motor finance brokers, asset finance brokers etc.) must prominently disclose the existence and nature of its commission arrangements where the commission varies depending on the lender, product or other permissible factors and may impact the transactional decision of the customer or affect the impartiality of the credit broker in recommending a product.
It is to be noted that the conduct the new commission disclosure rules aim to promote is the communication of disclosures prominently and early enough in the sales process to influence a customer’s decision making process.
Firms that operate in the motor finance sector (both lenders and brokers) are reminded to expect supervisory contact from the FCA as we move into the last quarter of 2021.
