On 4 March 2019, the FCA published its final findings following a review of the motor finance sector. The FCA wanted to understand the use of motor finance products, and to assess the sales processes employed by firms and whether the products could cause consumer harm.

The FCA reports that it has serious concerns about the way in which lenders in the motor finance market are choosing to reward car retailers and other credit brokers. It has found that the widespread use of commission models which allow brokers discretion to set the customer interest rate, to earn higher commission, can lead to conflicts of interest which are not adequately controlled by lenders. This can lead to customers paying significantly more for their motor finance.

It is not clear to the FCA why brokers should have such wide discretion to set or adjust interest rates, to earn more commission, and it is concerned that lenders are not doing enough to monitor and reduce the risk of harm. The FCA considers that change is needed across the market, to address the potential harm it has identified. It has started work with a view to assessing the options for policy intervention. This could involve consulting on changes to consumer credit rules to strengthen existing provisions or other policy interventions such as banning difference in charges and similar commission models or limiting broker discretion.

The FCA’s mystery shopping results raised a number of concerns in relation to pre-contractual disclosure and explanations, It is not satisfied that firms are complying with regulatory requirements and is following up with individual firms. The FCA states that firms should review their policies, procedures and controls to ensure they are complying with all relevant regulatory requirements and are treating customers fairly.

The FCA is also not satisfied that all lenders it surveyed are complying with the rules on assessing creditworthiness, including affordability. It found that some firms focused unduly on credit risk (to the lender) rather than affordability (for the borrower), and there were gaps or anomalies in information provided. The FCA introduced new rules and guidance which came into force on 1 November 2018. Firms are expected to have reviewed their policies and procedures in light of this, and made changes where necessary. The FCA is following up with individual firms to check this has been done.