NACFB Compliance: FCA outlines ‘serious concerns’ with dealer motor finance commission

Report reaffirms value of partnering with a broker who is a Member of a professional trade body


The Financial Conduct Authority (FCA) is looking at changes to the way in which commission is structured and arranged in the motor finance sector.

The final motor finance report, published this week, uncovers ‘serious concerns’ about the way in which lenders are choosing to reward both car retailers and credit brokers.

Their findings highlighted widespread use of commission models, which allow brokers discretion in setting the customer interest rate and thus earn higher commission, and how this can lead to conflicts of interest which may not be adequately controlled by lenders.

Commenting on the FCA’s report, NACFB Chair Paul Goodman, said: “The NACFB has been liaising with the FCA for some time over this issue and our Members have long been raising concerns over this type of practice by motor dealers. 

For the consumer, they can be assured that working with an NACFB broker, means they are dealing with a broker whom abides by a Code of Conduct, has Professional Indemnity insurance and has access to a wide range of funders to match the needs of the consumer. 

A number of dealers on the other hand, cannot state the same, which clearly brings into question how are their consumers being treated fairly.  As a Professional Association we will continue to work with the FCA to highlight what best practice looks like and promote our members whom continue to help fund UK SME’s.”

 NACFB Compliance Consultant, James Hinch, added: “We support any action which increases transparency and fairness for consumers whilst protecting competition in the industry.

 “We have seen the FCA intervene previously where poor practice has been identified, we only have to look at the payday loans or rent–to-own sectors to see the controls applied. It wouldn’t be too far-fetched to see such rules enforced here, along with additional disclosure requirements.

 “The NACFB has always championed best practise and our Code of Conduct reflects the high standards expected of all our Members, whether that be commercial – or consumer – driven.”

The FCA report concludes that it is assessing its options for intervening in the market seeking to address any harm it identified. This could include strengthening existing rules or implementing further steps such as banning certain types of commission model or limiting broker discretion.

Jonathan Davidson, executive director of Supervision Retail and Authorisations at the FCA said: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission pay-outs for themselves.

We estimate this could be costing consumers £300m 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.

Commenting on the FCA’s Motor Finance Report, Adrian Dally, Head of Motor Finance at the Finance & Leasing Association (FLA), said: “We welcome the FCA’s recognition of the work done by motor finance lenders to provide training for motor dealers and the positive impact this has had in meeting customer needs.

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 regulator said it expects all firms, both lenders and brokers, to review their policies, procedures and controls to ensure they are complying with all relevant regulatory requirements and are treating customers fairly.

Find out more, and read the full report, here.