How will the rules affect retail staff?
The FCA are banning commission products which give retailers discretion to negotiate the prices of credit agreements and where this leads to changes in the commission payments they receive. The FCA found that commission models of this kind incentivises higher APRs costing consumers an additional £300m in 2017, or an average of £1,100 extra paid for each finance agreement. This means lenders will no longer be able to offer discretionary commission to retailers.
Retail staff will be required to disclose the existence of commission and nature of the fee received and how it affects the amount payable by the customer. This can be done in general terms and will not need staff to provide the amount of commission - unless the customer asks.
Commission disclosure must be made where all three of these elements are in place:
- Retailers offer more than one credit or lease product that provide varying levels of commission
- The customer is eligible for more than one credit or lease product being offered.
- The retailer is recommending a credit or lease product to the customer.
In general, retailers should disclose commission if their recommendation to customers affects their impartiality, and if the level of commission would affect the customers decision to enter into the agreement.
The disclosure will need to be clear and prominent to the consumer and made in good time before the agreement is entered into.
When will the new rules come into effect?
The FCA plan to implement the disclosure rules at the same time the FCA’s policy statement is released in Q2 2020. Firms will have a further 3 months from this time to implement the ban on discretionary commission models. These timings however could change after the FCA consider responses to their Consultation Paper which can be found here.