The Financial Conduct Authority (FCA) has launched an investigation into historic commission agreements by motor finance groups. The probe will focus on whether commission arrangements have led to customers paying higher interest rates on their car loans. The FCA is concerned that customers may have been pushed into taking out more expensive loans to allow dealerships to earn higher commission fees. The investigation will examine the period from January 2007 to the present, and will also consider whether the monthly payments made by customers are fair and reasonable.
The FCA announced earlier this year that it would be conducting a review of commission arrangements in the motor finance sector, and this investigation is part of that wider review. The probe has been prompted by concerns raised by the FCA’s ongoing review into motor finance, which began in April 2017. The regulator is particularly concerned about the potential impact on vulnerable consumers who may be more at risk of being exploited by unfair commission arrangements.
The FCA’s probe follows a similar investigation by the Financial Ombudsman Service (FOS) last year. The FOS found that some customers had been treated unfairly by car finance companies that had failed to disclose commission fees. Following the FOS investigation, several car finance providers, including both banks and car manufacturers, have agreed to review their commission arrangements and compensate customers who have been affected by unfair practices.
The FCA has the power to take enforcement action against car finance providers found to have breached its rules. This could include imposing fines and requiring firms to change their practices. The regulator has stated that its primary objective is to make sure that customers are treated fairly and that they are not at risk of being exploited by commission arrangements. The investigation is expected to take several months to complete.