The Central Bank of Ireland (CBI) has issued a “Dear CEO” letter, mandating an end to discretionary commission arrangements (DCAs) in motor finance through hire-purchase agreements.
Regulated firms must cease these practices by 31 July 2024 and review other commission structures to ensure consumer documentation is updated appropriately.
The CBI’s directive follows an extensive review of commission practices in the motor finance market, focusing on the link between consumer interest rates and commissions paid to credit intermediaries. This move mirrors a similar ban by the UK’s Financial Conduct Authority, which found that DCAs led to higher costs for consumers.
DCAs, as defined by the CBI, allow credit intermediaries to set consumer interest rates with commissions tied to these rates. This structure can lead to potential conflicts of interest, resulting in higher costs for consumers. Examples of DCAs include “increasing difference in charges” and scaled models, where commission varies based on the interest rate negotiated.
The CBI’s investigation highlighted that such commission models are inconsistent with consumer protection requirements and conflict-of-interest regulations. As a result, the CBI proposes to extend the full Consumer Protection Code 2012 (CPC) to hire-purchase and consumer-hire activities.
Regulated firms must stop linking commission payments to interest rates by 31 July 2024, with board-approved confirmation due by 5 July 2024. Firms must also review and update all commission structures and consumer documentation by 30 August 2024, reporting the outcomes to the CBI by 30 September 2024.
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By GlobalData
This initiative underscores the CBI’s commitment to consumer protection and requires firms to align their practices with regulatory expectations to ensure fairness in the motor finance market.
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