Commission and other fees received by a motor dealer

Commission and other fees received by a motor dealer

The FCA’s final findings from its exploratory work on motor finance showed that many firms were not disclosing commission in line with regulatory expectations.  As a result, from 28 January 2021 the FCA implemented changes to its commission disclosure rules to make them clearer.  These changes require firms to disclose the “existence and nature of commission or fee or other remuneration payable” but not the amount, unless asked for by the customer. 

Updated rules on disclosing commission

The changes made to the rules apply to dealers and brokers at two stages:

1. Financial promotions (CONC 3.7.3-4) – on websites and in marketing the broker/dealer should provide general disclosures on the following:

  • the extent of their powers;
  • whether they work exclusively with one or more lenders or are independent;
  • the existence and nature of any financial arrangement with a lender.
2. Pre-contractual information (CONC 4.5.3-4) – the broker/dealer should disclose to the customer the existence and nature of any commission arrangement with a lender and how this may affect the amounts payable by the customer. They should disclose this prominently and in good time before the customer decides whether to proceed with their agreement. No individually tailored disclosure is required for each customer.

Disclosures should be fully documented (in writing) to help any future compliance audits. 

Areas to consider for dealers/brokers

There are many ways in which disclosures can be made compliantly to customers. Areas that brokers/dealers should consider include:

disclosing the status of their firm based on the consumer credit permissions they hold with the FCA;
noting that they cannot provide financial advice;
  • explaining the relationships they have with lenders, and how commission and any other incentive payments relate to the amount borrowed;
  • explaining that they will receive a commission for arranging the finance agreement and that the rate varies across the lenders on their panel (if applicable);
  • confirming that the commission paid does not affect the interest rate charged on the finance product (in line with the FCA’s motor finance discretionary commission ban);
  • reassuring the customer that they aim to secure the lowest rate for which they are eligible from the lenders they work with.
Pre-contractual disclosures made ‘prominently’ and ‘in good time’

The FCA’s mystery shopping exercise, which formed part of its motor finance exploratory work, highlighted that disclosures made by dealers were often not prominent enough and were unlikely to be noticed by the customer.  The term ‘prominent’ was incorporated into the updated rules. 

Dealers and brokers must ensure that disclosures are clearly received by customers, who must be given enough time to consider the information to make an informed decision about whether to proceed.