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FCA Consults on Banning Discretionary Commission Models

The FCA has just issued Consultation Paper CP 19/28 headed ‘Motor Finance discretionary commission models and consumer credit commission disclosure’.

The FCA’s review last year found widespread use of commission models that link brokers’ commission to the interest rate in the credit agreement and grant brokers wide discretion to set or adjust that rate (‘discretionary commission models’). The FCA considers that such models can give brokers and motor dealers an incentive to increase a customer’s interest rate, leading to conflicts of interest. In CP 19/28 the FCA consults on proposals to ban discretionary commission models.

The second aspect of the paper consults on minor amendments to the FCA’s existing commission disclosure rules in the CONC module of the Handbook. The FCA’s existing rules require brokers to disclose that they may receive commission from the lender, but in its review the FCA found that many brokers were not complying with these rules either by not making disclosure at all, or by not ensuring that disclosure was prominent. The proposed amendments “give greater clarity” on the existing provisions’ intention.

The paper is available here.