Commission models which give sellers the discretion to set interest rates and therefore earn higher commission have led to conflicts of interest meaning customers are paying more than they should, according to a new report from the Financial Conduct Authority (FCA).
This has resulted in some customers being overcharged more than £1,000 in interest charges.
“We estimate this could be costing consumers £300m annually. This is unacceptable and we will act to address harm caused by this business model,” said Jonathan Davidson, the FCA’s executive director of supervision for retail and authorisations.
“We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”
The watchdog carried out mystery shopping as part of its investigation into the motor finance sector, and found that customers were not always given complete, clear or easy to understand information about finance deals.
The FCA also said it was “not satisfied that all lenders were complying with the rules on assessing creditworthiness including affordability”.
Register for free to continue reading
Registration is a free and easy way to support our truly independent journalism
By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists
Already have an account? sign in
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies