Bid to drive down car loan costs

Watchdogs are to crack down on the car financing industry in a bid to save motorists

£165 million a year.

The Financial Conduct Authority (FCA) will introduce a ban on sellers and brokers charging commission linked to the interest rate customers pay on loans from next year.

The current system allows the broker to set the rate.

However, the FCA said the widespread use of this type of commission encouraged brokers to act against customers’ interests.

Buyers are often bamboozled by finance options, many admitting they are unable to identify the cheapest plan.

Christopher Woolard, the FCA’s executive director of strategy and competition, said: “We have seen evidence customers are losing out due to the way in which some lenders are rewarding those who sell motor finance.

“By banning this type of commission, we believe we will see increased competition in the market, which will ultimately save customers money.”

The FCA is also proposing to make changes to the way in which customers are told about commission to ensure that they receive the most relevant information.

These changes would apply to many types of credit brokers, not just those selling motor finance.

James Fairclough, chief executive of AA Cars, said: “The FCA has concluded, quite rightly, that there is no inherent problem with car finance products themselves.

“However, customers are poorly served if they are not shown all the options best suited to them, whether through a lack of transparency, deliberate misinformation or because brokers are trying to steer them toward a particular product to secure a discretionary commission.”