Understanding Commission Disclosure Rules for Car Finance Brokers

Why This Guide Matters

Navigating car finance can feel like stepping into a maze of unfamiliar terms and paperwork. One crucial but often misunderstood aspect is commission—specifically, what brokers earn for arranging your motor finance. The Financial Conduct Authority (FCA) has introduced rules to make commission disclosure clearer, giving consumers greater confidence and control. Understanding these rules isn’t simply about transparency; it’s about empowering you to ask the right questions and make informed decisions. Whether you’re buying your first car or upgrading, knowing how commission works could save you money and provide peace of mind.

The Basics Explained

Commission is a payment brokers receive from lenders for arranging finance agreements. Historically, the lack of transparency around these payments left many consumers unaware of their existence, or how they might influence the deals offered.

Under the FCA’s rules introduced in January 2021, car finance brokers must disclose:

• That they may receive a commission

• The nature of the commission (for example, fixed fee or variable)

• The impact of commission on the consumer’s finance deal, if the consumer asks

This means you have the right to know if your broker stands to earn more depending on the product or lender they recommend. Crucially, the rules ban commission models that link broker earnings directly to the interest rate you’re charged, reducing the risk of being steered toward costlier deals.

How It Affects You

When arranging car finance, you’re entitled to clarity. Brokers must reveal, upon request, whether they receive a commission and how it could affect the cost of your finance. This transparency can help you compare offers more effectively.

Imagine two brokers offering similar finance packages. One receives a flat commission per deal; the other earns more if you pay a higher interest rate—though this latter practice is now banned. With disclosure rules in place, you’ll know which broker’s incentives align more closely with your interests.

Here’s what this means for you:

• Informed consent: You can make decisions based on a clearer understanding of the financial incentives at play.

• Negotiation leverage: Knowing about commission can give you negotiating power, especially if you’re comparing multiple brokers or lenders.

• Reduced bias: With the FCA’s ban on interest-linked commissions, you’re less likely to be offered a deal based on broker profit instead of suitability.

Armed with the right information, you become a more confident and proactive consumer.

Our Approach

At Kandoo, we believe transparency isn’t just a regulatory box to tick—it’s the foundation of trust. Our approach to commission disclosure is built around clear communication and customer empowerment.

What does that mean in practice?

• Proactive disclosure: We make it plain that we may receive a commission from lenders. This information is highlighted in our communications and available whenever you want to know more.

• Explaining commission structures: If you ask, we’ll tell you whether our commission is fixed, variable, or determined by another factor. The aim is to demystify the process, so you know exactly how we’re compensated.

• Alignment with customer interests: We support the FCA’s ban on models that link commission to the interest rate. Our team works to find finance deals that suit your needs, not deals that maximise our commission.

• Open conversations: Questions are encouraged. Whether you’re confused about a term or want to see a comparison, we’ll provide straight answers. Our staff receive regular training to stay on top of disclosure requirements and best practices.

We believe that commission disclosure isn’t just about meeting legal requirements—it’s about building long-term relationships based on openness and integrity. By putting your interests at the heart of our service, we hope to set a standard for what responsible retail finance should look like.

Before You Decide

Before signing on the dotted line, take these steps to ensure you’re making a well-informed choice:

• Ask about commission: Don’t hesitate to query your broker about commission—what they earn, how it’s calculated, and whether different lenders pay different rates.

• Request written disclosure: If you want extra clarity, ask for the commission disclosure in writing. This is your right as a consumer.

• Compare offers: Look at APRs, total cost of credit, and any other fees. A deal with lower commission for the broker isn’t always the best for you, but understanding the structure helps you weigh your options.

• Check the lender’s credentials: Ensure your broker and lender are FCA-authorised. This gives you protection and recourse if things go wrong.

• Take your time: Never feel pressured to accept a finance package on the spot. A reputable broker will give you time to consider and compare.

Being thorough now can prevent surprises later.

What’s Real, What’s Hype

The push for commission disclosure has been welcomed as a win for consumers, but not all claims around it are accurate. Here’s what you need to know:

The reality:

• You have a right to ask about commission and its potential impact on your deal.

• Brokers can still earn commission, but the structure must be fair and transparent.

• The FCA’s ban on interest-linked commission removes a key conflict of interest.

The hype:

• Disclosure alone won’t guarantee the cheapest deal. It’s one tool among many for making sound decisions.

• Not all brokers are the same. Some may go beyond disclosure requirements, while others may only provide the bare minimum of information.

Transparency is a step forward, but your own vigilance remains essential.

Pros & Cons

Commission disclosure rules are a positive step, but they don’t eliminate the need for careful comparison and critical thinking.

Other Options to Consider

While brokers are a popular route to motor finance, they’re not the only option. Here are alternatives to consider:

• Direct from lenders: Approach banks or finance companies directly. This can sometimes result in lower rates, though you may miss out on a broker’s market knowledge.

• Dealership finance: Many car dealers offer finance packages, often through tied lenders. These may be convenient but can include additional costs or limited options.

• Personal loans: Consider an unsecured personal loan from your bank or building society. These can be flexible and, if you have a good credit score, may offer competitive rates.

• Credit unions: Some credit unions provide car loans at attractive rates, especially for members with strong community ties.

Each option has its own pros and cons regarding rates, flexibility, and convenience. Comparing a range of offers is the best way to ensure you get a deal that meets your needs.

FAQs

Q: Do all brokers have to disclose commission?
A: Yes. FCA rules require all regulated brokers to disclose the existence and nature of commission when arranging car finance.

Q: Can I ask how much commission my broker receives?
A: Absolutely. You have the right to request details about commission, though some figures may be provided as a range rather than an exact amount.

Q: Will knowing about commission help me get a better deal?
A: It can. Understanding commission structures gives you more information to compare offers and negotiate where possible.

Q: What if a broker won’t disclose commission details?
A: This is a red flag. Reputable, FCA-authorised brokers will comply with disclosure requirements. If in doubt, consider using another broker or reporting your concerns to the FCA.

Q: Does commission affect the interest rate I pay?
A: Not anymore. The FCA’s ban means brokers can’t earn higher commission by charging you a higher rate. This helps align broker incentives with your interests.

Q: Are there any downsides to using a broker?
A: While brokers offer access to a range of lenders, some may only work with select partners. Always ask about the range of options available.

Q: Can I arrange motor finance without a broker?
A: Yes. You can apply directly to lenders, dealerships, or use personal loans. Each route has its own merits.

Next Steps

If you’re considering motor finance, start by asking your broker about commission. Request full disclosure, compare multiple offers, and take your time weighing the pros and cons. Should you have questions, seek out FCA-authorised professionals who prioritise transparent advice. Remember: informed consumers make the best decisions.