Analysis: Should premium finance-earning brokers worry about the FCA?

Car dealership brokers are hurting this week. 

The FCA’s latest actions following the release of its Motor Finance Commissions report  could result in a loss of approximately £125m for brokers in the car dealership sector, according to the regulator’s predictions.  

The proposed ban is likely to come into force mid-2020 and will see add-on car commissions for brokers stopped.  

Ravi Takhar, chief executive and co-founder at Bexhill UK. previously revealed to Insurance Times, he is concerned about the inevitable oncoming read across into other areas of credit broking, such as premium finance. 

“The FCA is saying quite clearly that brokers adding commissions of an unreasonable nature to their net rates or their lenders should be banned,” he warns. 

So how concerned should insurance brokers be about the read across into their premium financing? 

Owen Thomas, chief sales officer at Premium Credit, told Insurance Times that the firm is continuing to consider implications following publication of the FCA report.   

“We believe our partners provide an important service for customers and we continue to work closely with them to ensure good customer outcomes,” he said.  

Not just motor finance  

EY partner Sajedah Karim explained that the FCA’s crackdown on car finance commissions will have a wider impact. 

She warned: “The proposals may require business models to be reviewed and alternative commission structures or ways of replacing lost revenue to be considered, as well as systems to be enhanced, and contracts and staff remuneration arrangements to be renegotiated as the next steps.” 

Any “additional proposals around commission disclosure, clarifying existing rules will impact brokers across the consumer credit market,” she added, stressing that it is “not just within the motor finance sector”. 

No inherent problem  

James Fairclough, chief executive at AA Cars, said that although the FCA has concluded “quite rightly that there us no inherent problem with car finance products themselves” however “customers are poorly served if they are not shown the options best suited to them”. 

The key to solving the problem of credit lending - across all areas including premium finance - is better transparency. 

“Transparency and clarity are essential for the car finance industry to serve customers properly, and the FCA’s proposal would make it easier for car buyers to compare different deals and shop around,” he said.  

Fairclough believes that finance providers have done an excellent job of offering customers a wide and flexible range of products designed to make buying and running a car easier.  

He said that too often customers are not presented with the full range of options, meaning that they may miss out on good deals or pay more than they should. 

But Fairclough said that the FCA proposal “should improve consumer choice and transparency”.  

Although he admits: “Customers should still thoroughly research before selecting a deal.”