Bad news for car supermarkets / traders?
Discussion
https://www.bbc.co.uk/news/business-50052375
Looks like the days of making a killing on the commission are over.
Looks like the days of making a killing on the commission are over.
The issue is not the interest rate itself but the control that the dealer has over what rate is charged.
If a dealer wants to advertise finance at 99% APR then they would still be allowed to do so.What is frowned upon is arbitrarily offering different rates to different people based on what the dealer thinks he can get away with.
As an example, if one of my customers wishes to borrow £10000 over 3 years then I could write that business at 5.9% APR ( 3% flat rate approx ), the customer would pay around £900 in interest and changes and I would earn precisely £0 for my employer.
Since we only do it to make profit we advertise our finance offers at 8.9% APR, that customer would pay approximately £1300 in charges on the £10000 balance and almost all of that £400 Difference In Charges would be received by us ( the dealer ) in commission.
Of course if someone less scrupulous was presented with a naive or vulnerable customer then there is nothing beyond those scruples stopping the dealer from arbitrarily upping the rate from 8.9% to say 15.9% APR, costing the customer £2452 in charges and earning the dealer nearly £1500 in commission. This is what the FCA are proposing to regulate upon.
Contrary to some of the newspaper headlines today, PCP is not being banned, dealers are not being prohibited from earning commission from finance sales. What is being proposed is that commission payments should not be based on the DIC model illustrated above.
So a new commission structure could be based around a non negotiable rate which pays a fixed amount according to the amount advanced, or as a handling fee or document fee per case, or as a monthly or quarterly volume bonus not linked to any single transaction.
To quote from the FCA report "We do not expect our intervention to result in significant unintended consequences for brokers or lenders."
If a dealer wants to advertise finance at 99% APR then they would still be allowed to do so.What is frowned upon is arbitrarily offering different rates to different people based on what the dealer thinks he can get away with.
As an example, if one of my customers wishes to borrow £10000 over 3 years then I could write that business at 5.9% APR ( 3% flat rate approx ), the customer would pay around £900 in interest and changes and I would earn precisely £0 for my employer.
Since we only do it to make profit we advertise our finance offers at 8.9% APR, that customer would pay approximately £1300 in charges on the £10000 balance and almost all of that £400 Difference In Charges would be received by us ( the dealer ) in commission.
Of course if someone less scrupulous was presented with a naive or vulnerable customer then there is nothing beyond those scruples stopping the dealer from arbitrarily upping the rate from 8.9% to say 15.9% APR, costing the customer £2452 in charges and earning the dealer nearly £1500 in commission. This is what the FCA are proposing to regulate upon.
Contrary to some of the newspaper headlines today, PCP is not being banned, dealers are not being prohibited from earning commission from finance sales. What is being proposed is that commission payments should not be based on the DIC model illustrated above.
So a new commission structure could be based around a non negotiable rate which pays a fixed amount according to the amount advanced, or as a handling fee or document fee per case, or as a monthly or quarterly volume bonus not linked to any single transaction.
To quote from the FCA report "We do not expect our intervention to result in significant unintended consequences for brokers or lenders."
Wooda80 said:
The issue is not the interest rate itself but the control that the dealer has over what rate is charged.
If a dealer wants to advertise finance at 99% APR then they would still be allowed to do so.What is frowned upon is arbitrarily offering different rates to different people based on what the dealer thinks he can get away with.
As an example, if one of my customers wishes to borrow £10000 over 3 years then I could write that business at 5.9% APR ( 3% flat rate approx ), the customer would pay around £900 in interest and changes and I would earn precisely £0 for my employer.
Since we only do it to make profit we advertise our finance offers at 8.9% APR, that customer would pay approximately £1300 in charges on the £10000 balance and almost all of that £400 Difference In Charges would be received by us ( the dealer ) in commission.
Of course if someone less scrupulous was presented with a naive or vulnerable customer then there is nothing beyond those scruples stopping the dealer from arbitrarily upping the rate from 8.9% to say 15.9% APR, costing the customer £2452 in charges and earning the dealer nearly £1500 in commission. This is what the FCA are proposing to regulate upon.
Contrary to some of the newspaper headlines today, PCP is not being banned, dealers are not being prohibited from earning commission from finance sales. What is being proposed is that commission payments should not be based on the DIC model illustrated above.
So a new commission structure could be based around a non negotiable rate which pays a fixed amount according to the amount advanced, or as a handling fee or document fee per case, or as a monthly or quarterly volume bonus not linked to any single transaction.
To quote from the FCA report "We do not expect our intervention to result in significant unintended consequences for brokers or lenders."
That’s a useful and insightful post.If a dealer wants to advertise finance at 99% APR then they would still be allowed to do so.What is frowned upon is arbitrarily offering different rates to different people based on what the dealer thinks he can get away with.
As an example, if one of my customers wishes to borrow £10000 over 3 years then I could write that business at 5.9% APR ( 3% flat rate approx ), the customer would pay around £900 in interest and changes and I would earn precisely £0 for my employer.
Since we only do it to make profit we advertise our finance offers at 8.9% APR, that customer would pay approximately £1300 in charges on the £10000 balance and almost all of that £400 Difference In Charges would be received by us ( the dealer ) in commission.
Of course if someone less scrupulous was presented with a naive or vulnerable customer then there is nothing beyond those scruples stopping the dealer from arbitrarily upping the rate from 8.9% to say 15.9% APR, costing the customer £2452 in charges and earning the dealer nearly £1500 in commission. This is what the FCA are proposing to regulate upon.
Contrary to some of the newspaper headlines today, PCP is not being banned, dealers are not being prohibited from earning commission from finance sales. What is being proposed is that commission payments should not be based on the DIC model illustrated above.
So a new commission structure could be based around a non negotiable rate which pays a fixed amount according to the amount advanced, or as a handling fee or document fee per case, or as a monthly or quarterly volume bonus not linked to any single transaction.
To quote from the FCA report "We do not expect our intervention to result in significant unintended consequences for brokers or lenders."
Expect it it to be roundly ignored or misunderstood
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