Content Options

Content Options

View Options

Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

You are viewing the version of the document as on 2021-01-28.

CONC 4.5 Commissions

Application

CONC 4.5.1 R RP
  1. (1)

    CONC 4.5.2 G applies to a firm with respect to consumer credit lending.

  2. (2)

    CONC 4.5.3 R to 1CONC 4.5.4 R apply to a firm with respect to credit broking in relation to:

    1. (a)

      regulated credit agreements; and

    2. (b)

      regulated consumer hire agreements.

  3. (3)

    CONC 4.5.3 R to 1CONC 4.5.4 R also apply to a firm carrying on the activities specified in article 36A(1)(a) or (b)1 of the Regulated Activities Order in relation to:

    1. (a)

      credit agreements that would be regulated credit agreements but for the relevant provisions; and

    2. (b)

      consumer hire agreements that would be regulated consumer hire agreements but for articles 60O and 60Q of the Regulated Activities Order.

  4. (4)

    1CONC 4.5.5G to CONC 4.5.8G apply to a firm with respect to consumer credit lending and credit broking in relation to a regulated credit agreement the purpose of which (in whole or in part) is to finance the purchase of a motor vehicle or under which a motor vehicle is bailed or hired.

Commissions lenders to credit brokers

CONC 4.5.2 G RP

A lender should only offer to, or enter into with, a firm a commission agreement providing for differential commission rates or providing for payments based on the volume and profitability of business where such payments are justified based on the extra work of the firm involved in that business.

[Note: paragraph 5.5 (box) of ILG]

Commissions: credit brokers

CONC 4.5.3 R RP

A credit broker must prominently1 disclose to a customer in good time before a credit agreement or a consumer hire agreement is entered into, the existence and nature1 of any commission or fee or other remuneration payable to the credit broker by the lender or owner or a third party1, where the existence or amount of the commission, fee or other remuneration1 could actually or potentially:

  1. (1)

    affect the impartiality of the credit broker in recommending the credit agreement or the consumer hire agreement1; or

  2. (2)

    if made known to the customer,1 have a material impact on the customer’s transactional decision to enter into the credit agreement or the consumer hire agreement1.

    [Note: paragraph 3.7i (box) and 3.7j of CBG and 5.5 (box) of ILG]

CONC 4.5.3A R

1In circumstances where the credit broker is required to disclose the existence and nature of any commission, fee or other remuneration under CONC 4.5.3R, it must also disclose to the customer, at the same time and with equal prominence, how the existence and nature of this commission, fee or other remuneration may affect the amounts payable by the customer under the relevant credit agreement or consumer hire agreement.

CONC 4.5.3B G
  1. (1)

    1Where the amount of any commission, fee or other remuneration in CONC 4.5.3R varies due to a factor specified in the arrangement or agreement under which the commission, fee or other remuneration is payable, for example a specific feature of the credit agreement or consumer hire agreement or the level of work undertaken by the credit broker, the credit broker should make disclosure under CONC 4.5.3R in relation to the commission, fee or other remuneration.

  2. (2)

    Where:

    1. (a)

      the firm has entered into arrangements (irrespective of how many other persons those arrangements are with) under which it may earn commission, fees or other remuneration in relation to two or more different credit agreements or consumer hire agreements;

    2. (b)

      the customer could be eligible for two or more of those agreements;

    3. (c)

      the credit agreement or the consumer hire agreement the firm is recommending is one of those agreements;

    4. (d)

      the commission, fees or other remuneration payable to the firm varies depending on which of the credit agreements or consumer hire agreements the customer enters into,

    the firm should make disclosure to the customer under CONC 4.5.3R in relation to the arrangements.

  3. (3)

    The disclosure in (2) may be in general terms, but it should enable the customer reasonably to appreciate the effect of the arrangements.

  4. (4)

    The credit broker is not, under CONC 4.5.3AR, required to provide to the customer an individually tailored illustration of how the commission, fees or other remuneration in CONC 4.5.3R may affect the amounts payable by the customer under the credit agreement or consumer hire agreement.

CONC 4.5.4 R RP

At the request of the customer, a credit broker must disclose to the customer, in good time before a regulated credit agreement or a regulated consumer hire agreement is entered into, the amount (or if the precise amount is not known, the likely amount) of any commission or fee or other remuneration payable to the credit broker by the lender or owner or a third party.

[Note: paragraph 3.7i (box) of CBG]

Prohibition on discretionary commission arrangements in the motor finance market

Purpose

CONC 4.5.5 G

1The purpose of CONC 4.5.6R to CONC 4.5.8G is to prohibit credit brokers and lenders to whom they introduce customers wishing to enter into regulated credit agreements to finance the acquisition of motor vehicles from making or relying on arrangements under which credit brokers are given authority to decide or negotiate the prices of those regulated credit agreements on behalf of lenders and the amount of commission the credit brokers earn is affected by those prices.

Prohibition

CONC 4.5.6 R

1A lender or credit broker must not:

  1. (1)

    enter into or have rights or obligations under a discretionary commission arrangement; or

  2. (2)

    seek to exercise, enforce or rely on rights or obligations under a discretionary commission arrangement, including any rights or obligations to receive or tender payment of commission, fee or other financial consideration.

Examples of discretionary commission arrangements

CONC 4.5.7 G

1The following are examples of discretionary commission arrangements:

  1. (1)

    An agreement under which the lender sets a minimum rate of interest and the commission payable by the lender to the credit broker in respect of a regulated credit agreement entered into by the lender is calculated by reference to the difference between the rate of interest negotiated by the credit broker and payable by the customer under the regulated credit agreement and the minimum rate of interest. These types of arrangements are often referred to as “increasing difference in charges” or “interest rate upward adjustment” arrangements.

  2. (2)

    An agreement under which the lender sets a maximum rate of interest and the commission payable by the lender to the credit broker in respect of a regulated credit agreement entered into by the lender is calculated by reference to the difference between the rate of interest negotiated by the credit broker and payable by the customer under the regulated credit agreement and the maximum rate of interest. These types of arrangements are often referred to as “decreasing difference in charges” or “interest rate downward adjustment” arrangements.

  3. (3)

    An arrangement or agreement under which the commission payable by the lender to the credit broker in respect of a regulated credit agreement entered into by the lender varies (within set parameters) according to the rate of interest negotiated by the credit broker and payable by the customer under the regulated credit agreement. These types of arrangement are often referred to as “scaled models”.

Accrued commissions

CONC 4.5.8 G
  1. (1)

    1CONC 4.5.6R does not affect commissions under discretionary commission arrangements liability for which accrued before the date on which CONC 4.5.6R came into force. CONC 4.5.6R does affect, however, commissions under discretionary commission arrangements that became due on or after the date on which CONC 4.5.6R came into force, irrespective of whether the relevant discretionary commission arrangement was entered into before or after the date on which CONC 4.5.6R came into force.

  2. (2)

    Accordingly, commissions under a discretionary commission arrangement relating to regulated credit agreements entered into before the date on which CONC 4.5.6R came into force are not affected by CONC 4.5.6R.

  3. (3)

    However, commissions under a discretionary commission arrangement relating to regulated credit agreements entered into after the date on which CONC 4.5.6R came into force (whether or not the discretionary commission arrangement was entered into before that date) are affected by CONC 4.5.6R.