Car buyers 'overcharged by £1,000' for finance

Car buyers could be paying £1,000 over the odds in finance plan interest charges, the City watchdog has warned.

The Financial Conduct Authority (FCA) said it was considering action to address commission models that were overcharging consumers to the tune of around £300m annually in total.

It outlined conflict of interest concerns in the relationship between lenders, car retailers and other credit brokers.

The regulator said they centred on models which allow brokers discretion to set the customer interest rate and thus earn higher commission.

Jonathan Davidson, the FCA's executive director of supervision, said: "We found that some motor dealers are overcharging unsuspecting customers over £1,000 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."

Options available to the watchdog include strengthening existing rules or other steps such as banning certain types of commission model or limiting broker discretion.

The FCA, which collated its findings during a so-called "mystery shopping" exercise, said it would follow up with individual firms where failures had been identified.