Motor Finance – New Financial Conduct Authority Guidance

Today (28 January 2021) marks the introduction of the Financial Conduct Authority's new rules which ban the receipt by car dealers and motor finance brokers of commission from finance companies, the amount of which is linked to the level of the interest rate included in the Finance Agreement.

The rules were introduced to prevent there being an incentive on the part of the motor dealer or motor finance broker to earn greater commission by selling Finance Agreements which included high rates of interest.

Some finance companies are now switching to risk based pricing models in respect of the Finance Agreements they sell. These models will recognise the connection between the borrower and their risk profile.

This will mean that the motor dealer or motor finance broker will have no control over the interest rate offered by the finance company which will be purely dictated by a proposed customer's credit status.

In other Financial Conduct Authority news, it has now been confirmed that, as of 31 January 2021, it will be once again possible for creditors to repossess motor vehicles where the debtor is in payment default. Previously the Financial Conduct Authority's guidance published in November 2020 had stated that firms should not terminate regulated consumer credit agreements or repossess motor vehicles which a customer needed (except in exceptional circumstances).

However whilst terminating agreements and repossessing of motor vehicles will now be permitted under the new guidance, the Financial Conduct Authority has stated that such should be a last resort and firms should take into account the needs of vulnerable customers and, in any event, repossessions should be carried out in accordance with Public Health Guidelines (social distancing etc.).

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.