Consumer credit commission disclosure – have you received a letter?

As you are aware, the Financial Conduct Authority (FCA) announced in their Business Plan 2017/2018 that they were to conduct a review of the motor finance sector. This culminated in the Policy Statement PS20/8 July 2020: Motor Finance discretionary commission models and consumer credit commission disclosure – feedback on CP19/28 and final rules

I am sure you have all read it numerous times! You will, no doubt, be fully aware of the changes that your lenders have made to your commission models. Therefore, we would like to focus on commission disclosure. The FCA stated in the policy: “We also found high levels of non-compliance with some of our existing commission disclosure requirement in our Consumer Credit sourcebook (CONC).”

The findings from the FCA’s work have triggered a growing trend for certain types of solicitors to initiate business by intimating that historical finance agreements have been mis-sold and customers are not being made aware of finance commission. Letters are being sent to our members requesting they divulge confidential information about commission that was not requested by the customer at the appropriate time. We have noticed that this has caused confusion with several of our members.

Members seem to believe this is a new regulation that has only come into place on 28 January 2021. The ban on discretionary commission models came into play on this date, however, commission disclosure has been a requirement for several years. There has been a slight change to CONC 4.5.3R in January 2021 with the addition of the word “prominently”. CONC 4.5.4R has not changed and therefore, if a customer asks for the details of the commission, this information must be disclosed.

The other amendments to CONC in relation to commission disclosure is you must make known how this commission affects the customer’s credit agreement. In most cases, the following statement would suffice: “the amount of commission that we receive from a lender does not influence the amount that you pay to that lender under your credit agreement.” [CONC 4.5.3A R] 

Also, there is guidance as to any variations of credit agreements for which you may earn commission. For example, on two different types of credit agreements, Hire Purchase (HP) compared with Personal Contract Purchase (PCP) and whether you are recommending a certain agreement over another. [CONC 4.5.3B G]

As with most FCA rules and guidance, they are not prescriptive as to what you should and should not do, so the changes are very subjective. Displaying commission disclosure prominently for one member may be totally different to another. A franchised dealer with numerous manufacturers’ finance houses compared with an independent dealer using only a couple of lenders, may do things totally differently. A useful reminder of how the FCA expects you to conduct your business is very clear in Principle 7 Communication with clients: “A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.”

Also, don’t forget that the lender has a responsibility in this area, as stated in CONC: “take reasonable steps to ensure that other persons acting on its behalf comply with CONC.” [CONC 1.2.2R] The FCA highlighted this as an issue and that lenders may not be monitoring their brokers as sufficiently and closely as they should.

If you have received a solicitor’s letter or need some help or advice with regards to FCA compliance regulation, please do not hesitate to contact us. You are not alone!