Credit broking remuneration models - a review

By Mark Greenwood, Director of Compliance Services, The SimplyBiz Group

The FCA has recently published its Thematic Review TR18/2 ‘Impact of credit broking remuneration models at the point of sale’, outlining the findings from their review into inter-firm commission or remuneration models in credit broking.

The review considered whether inter-firm remuneration, such as the commission paid to brokers by lenders, was resulting in consumer harm. It looked at retailers selling goods on finance, online loan brokers, price comparison websites and commercial finance brokers, but not motor finance brokers who are subject to a separate review process by the FCA. The regulator has stated that it will publish the findings of the motor finance project later in the year.

Overall findings:

• The FCA did not find evidence that inter-firm commissions paid to credit brokers are generally resulting in significant widespread harm to consumers.

• The FCA did identify a small number of issues in individual firms which are being addressed with those firms individually.
• The FCA has committed to continuing to monitor credit broking activity as part of their overall supervisory strategy and to address harm in individual firms where they see it.

Other issues

Other issues came to light during the review, unrelated to inter-firm commission.  These include a minority of consumers indicating that they felt ‘’pressured during the sales process; were unhappy with the decision to buy on credit; or uncomfortable the credit product they purchased was right for them”.  Although this was not representative of a typical customer journey, it indicates that risk remains within the market.

Examples of good practice

The FCA cites the following as examples of good practice:

Finance brokers

• Reviewing the customer base, considering the suitability of the credit products on offer and then engaging with the lender to trial different products with features that might be more suitable for the circumstances and requirements of their particular client base.

• Identifying that their customer base might include ‘vulnerable clients’, employing an extensive vulnerable customer policy which included checking whether customers could remain vulnerable throughout and beyond the point of sale.

Loan brokers

• Investing in online technical innovations to be able to present customers with products that are best suited to their circumstances and requirements

• Presenting information on a customer’s likelihood of being accepted by a lender, and working with lenders to provide information on the actual product and terms that that individual customer would be offered.

The FCA will continue to monitor credit broking activity as part of ongoing supervisory strategy and address harm in individual firms when they see it.