Visi Money
TLDR: The UK’s Financial Conduct Authority (FCA) has launched an investigation into historic commission agreements made by motor finance groups, following concerns that these agreements may have led to customers paying more for their car finance. The probe comes as interest in motor finance has surged in recent years, with over 90% of new cars in the UK now being purchased through finance agreements.
The FCA probe will focus on whether lenders and brokers complied with regulatory requirements and treated customers fairly. The investigation will cover a sample of firms that provide motor finance and will look into whether commission agreements and practices have led to conflicts of interest and inflated interest rates for customers.
The FCA is also assessing whether firms disclosed the nature of their commission arrangements to customers and whether these arrangements adequately incentivized the sale of car finance products.
The investigation follows concerns raised by the FCA about the risk of financial harm to consumers in the motor finance market. In a recent report, the regulator highlighted the substantial increase in motor finance lending and the potential for consumer harm, including poor affordability assessments, lack of transparency, and potential exploitation of vulnerable customers.
The FCA is concerned that lenders may have failed to assess affordability properly and may have granted loans to customers who should not have been granted finance. While the regulator sees motor finance as a valuable and competitive market, it also warns that it raises risks to consumers and the wider economy.
The outcome of the FCA’s investigation could lead to changes in the way motor finance is sold and financed. This may include lenders and brokers being required to offer more affordable finance options and ensure that they are acting in the best interests of consumers.
While it is too early to tell what the consequences of the investigation will be, the FCA has made it clear that it will take action if it finds evidence of misconduct or unfair treatment of customers in the motor finance market. This could result in fines, sanctions, or enforcement action against firms found to be in breach of the FCA’s rules and regulations.
The investigation is part of the FCA’s wider focus on the motor finance market, which includes ongoing work to assess the risks and potential harm to consumers. The regulator is currently exploring various options to address those risks and protect consumers, including changes to its rules and guidance and the introduction of new regulations.
