On 27 September 2018, the FCA published a report (TR18/2) following its thematic review of the impact of credit broking remuneration models at the point of sale. This focussed on the extent to which commission arrangements, such as fees paid to brokers by lenders, can lead to customer detriment.
The review covered a wide variety of credit brokers offering loans or finance provided by a third party, including retailers selling goods on finance and price comparison websites. It did not consider motor finance firms as this market is subject to a separate FCA review.
Whilst the report does identify some examples of poor customer outcomes, the FCA did not find evidence to suggest that commission payments to credit brokers (excluding motor finance brokers) were, on the whole, resulting in consumer detriment. A minority of customers did, however, indicate that they felt pressured during the sales process, were unhappy with their decision to buy goods on credit or were uncomfortable that the credit product they purchased was right for them. This was more likely to arise where a customer was visited by a salesperson in their home.
Other key points commented on by the FCA in its report include that:
- credit broking is not the main business of the majority of firms that are regulated by the FCA for this activity – many are retailers who offer point-of-sale finance on their goods as a way of driving more sales, rather than generating income through commission;
- most credit brokers who were part of the survey did not receive commissions in relation to the credit products offered and where the product was interest-free, a payment was typically paid to the lender;
- where brokers offered both interest-bearing and interest-free products, the majority of the loans sold were usually interest-free;
- most consumers saw their experience of buying products on credit through a credit broker, as being positive, irrespective of whether commission was paid or not.
The report also contains some useful examples of both good and bad practice which will be of interest to those engaged in credit broking activity.
The FCA will continue to monitor credit broking activity as part of its ongoing supervisory responsibilities. It will publish the findings of its motor finance review later in 2018.