FCA announce to ban motor finance discretionary commission models – comment

Following the FCA announcement this morning to ban motor discretionary commission models, John Perez, Partner at DWF, said: “The concern for the industry will be how dealers will bridge the gap in loss commission sales. A point of sale motor finance transaction involves a number of different elements which dictate how a dealer makes their margin on a deal, commission making up just one element of this. The concern will be whether vehicle values will increase as a result of dealers protecting the margins that they’ve been accustomed to.

“I also see rate for risk pricing being more widely adopted. This could result in dealers earning more commission on deals being approved for customers with a poorer credit profile. The FCA have expressly stated that rate for risk pricing could be a compliant model provided the dealer does not directly affect their commission. There’s a risk here that a vulnerable consumer could end up paying more interest and consequently more commission to a dealer, if a lender’s commission model aligns commission to the interest rate offered.”