UK watchdog warns over car loans investigation into finance firms

Analysts have said the review could land banks with a multibillion-pound bill as the watchdog probes so-called discretionary commission arrangements

Discretionary commission arrangements, that incentivised car dealers to increase a customer’s borrowing costs, were banned in 2021.

The UK's Financial Conduct Authority, or FCA, has warned motor finance firms to begin preparing for additional costs that may arise from its review of car finance products after lenders in recent months diverged on whether to take an immediate hit to earnings.

The watchdog, which has been reviewing historical commissions for car loans since January, said all firms needed “to plan for any additional operational costs from increased complaints and, where applicable, to meet the costs of resolving those complaints”.