Regulator warning to car dealers who overcharge customers

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The Financial Conduct Authority is currently reviewing how brokers and car dealers are being paid commission on the sale of new and used cars.

Reports show that car dealerships, which act as middlemen for car finance companies, have been given “wiggle room” to change APRs and rates quite freely and are able to drive up their own personal commission.

Before an FCA ruling was enforced in 2019, finance brokers allowed car dealers to earn on the difference in charges and earn more commission if they sold hire purchase (HP) or personal contract purchase (PCP) at a higher price.

With this in place, some car dealers were able to to play on the customer’s lack of knowledge and offer inflated prices, with the customer being no wiser.

The FCA have highlighted that the car finance market is lacking transparency and in many cases, the average motorist has been charged up to £1,100 more on a three or four-year deal than if they looked elsewhere.

We have concerns firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations

The FCA’s Jonathan Davidson told the BBC: “We found 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 £300 million annually. This is unacceptable and we will act to address harm caused by this business model.

“We also have concerns 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.”

Quick Car Finance entered the market in 2018 eager to tackle this discrepancy.

“We said from the start, it is one rate for every customer,” explained co-founders Iain Williams and Paul Williams.

“This is something that we had signed and agreed with all brokers, dealers and partners that we work with. We still need to check the customer’s credit score and affordability beforehand and this will influence the price offered by the car loan companies.

“We came into the market around one-year-and-a-half ago and we started with transparency from the beginning. This was a lot easier than being an older company that has to adjust and change its approach.”

“We run our own quick car check on every car purchase which gives a check of the car, its history and the dealer it is being bought from. We want to put the buyer in control and offer a fully transparent car buying experience.”