Motorists being overcharged more than £1,000 for car finance deals

The FCA have announced a crackdown on rogue car finance companies overcharging customers to earn more in commission.

couple buying a new car

Many car finance customers are paying over £1,000 extra in interest charges because of commission incentives, according to the Financial Conduct Authority (FCA).

Finance arrangements are becoming increasingly popular as they allow motorists to spread the cost of buying a car. While another option is to take out a personal loan to cover the cost of a car, many consumers choose to agree a finance plan with the car dealer e.g. hire purchase (HP) or personal contract purchase (PCP) – where the dealer acts as the broker for the finance plan.

However, a new FCA report has found that a lot of firms that offer these finance deals use commission models that let the broker decide the interest rate the customer will pay and will link the amount of commission the dealer earns to the level of interest the customer signs up for.

The FCA has determined that this can lead to a conflict of interest, with the broker setting a higher interest rate for the customer to earn more commission in return – leaving consumers to pay an excessive amount during the term of their finance plan. By the FCA estimates, this practice could be costing car finance customers as much as £300 million a year.

As part of their review, the FCA also found that some firms were not providing customers with clear and understandable information, and many did not acknowledge that they receive commission for setting up the car finance plan.

Subsequently, the FCA are considering strengthening the rules surrounding the selling of motor finance and could take further steps such as banning certain commission incentives or reducing the level of control dealers/brokers can have over the rate of interest a customer pays.


The FCA investigation was triggered in April 2017 following concerns over transparency in the fast-growing car finance industry. The FCA has now concluded that dealers and lenders are boosting their commissions by overcharging customers, and has warned it will now “act to address harm caused by this business model”.

The investigation was sparked in April 2017 amid concerns of transparency in the fast-growing car finance industry.

In the meantime, the FCA will deal with the individual firms where specific problems were raised – but it expects that all brokers and lenders will need to review their business practices to make sure they treat customers fairly.

The FCA’s Jonathan Davidson said:

“We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves.

“We estimate this could be costing consumers £300m annually. This is unacceptable and we will act to address harm caused by this business model.

“We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments.

“This is simply not good enough and we expect firms to review their operations to address our concerns.”

What to do if you think you have been overcharged

If you think you have been overcharged on your car finance deal, then your first port of call is to raise it with the dealer or lender and then register a complaint with them if you are not satisfied.

If the outcome of your complaint is not satisfactory or you still have concerns about the way you were sold your finance plan, then you can contact the FCA to take it further: