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FCA focusses its motor finance microscope on commission structures and default rates

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The Financial Conduct Authority (FCA) will focus on motor finance commission structures, increasing arrears and default rates as the main targets of its review of the industry.

In a statement within the FCA’s Annual Report and Accounts 2017/18, the organisation said: “The lenders we reviewed appeared to be adequately managing the risk to their business from a potential fall in car prices.

“However, we have found some areas of concern, such as increasing arrears and default rates for customers with the lowest credit scores and some poor practices in the way firms provide information to customers.”

The FCA said it also found that some commission structures could lead to higher motor finance costs if not properly managed by lenders and brokers.

It said: “We are therefore focusing on these areas for the remainder of the motor finance review, which is due to be published by the end of 2018.”

Charles Randell, FCA chair, also said that alongside its investigations into the motor finance sector, a “considerable amount of resource” is being committed to dealing with Brexit.

He also gave some views on how important financial technology will be for the industry in the future, but also the risks that come with that innovation.

He said: “Technology is key to delivering financial advice, products and services to meet society’s changing needs.

“It can slash costs, join up information and services and offers access to financial services to new groups of consumers. Innovation so far has barely touched the surface of what is, and will be, possible in the industry.

“But it remains a double-edged sword. It allows more people than ever to access essential financial services, but may also expose them to risk, including the risks of online fraud and unfair use of their data.”

He said there was a risk that some consumers could get left behind as technology marches on.