If a credit broker – including a motor dealer – receives a commission then CONC requires that:
A credit broker must disclose to a customer in good time before a credit agreement or consumer hire agreement is entered into, the existence of any commission or fee or other remuneration payable to the credit broker by the lender or owner or third party in relation to a credit agreement or a consumer hire agreement, where knowledge of the existence or amount of the commission could actually or potentially:
- affect the impartiality of the credit broker in recommending a particular product
- have a material impact on the customer’s transactional decision.
CONC 4.5.4R goes on to say that:
At the request of the customer, a credit broker must disclose to the customer, in good time before a regulated credit agreement or a regulated consumer hire agreement is entered into, the amount (or if the precise amount is not known, the likely amount) of any commission or fee or other remuneration payable to the credit broker by the lender or owner or a third party.
These two provisions in CONC are both Rules (rather than guidance) and must therefore be adhered to by all authorised credit brokers, including motor dealers.
Commission disclosures should be fully documented (in writing) to help any future compliance audits.
For motor finance providers, CONC provides guidance at 4.5.2G states:
A lender should only offer to or enter into with a firm a commission agreement providing for differential commission rates or providing for payments based on the volume and profitability of business where such payments are justified based on the extra work of the firm involved in that business.
Commission disclosure rule changes in 2020
The FCA’s work on motor finance has shown that many firms were not disclosing commission in line with what the regulator expected. The FCA has therefore proposed changes to its commission disclosure rules to make them clearer. These changes will likely lead to firms having to disclose the ‘existence and nature of’ commission more often, but not the amount, unless asked for by the customer. The new rules are expected to be finalised and come into effect in mid 2020.