Some motor dealers have been overcharging customers more than £1,000 in interest charges on loans taken out to buy a car, the UK financial watchdog has said.
The Financial Conduct Authority (FCA) said an investigation into the motor credit sector found these dealers were overcharging to boost their own commission.
The practice of allowing dealers to set their own interest rates on loans is costing car buyers £300mln a year, the regulator added.
“This is unacceptable and we will act to address harm caused by this business model,” the FCA said.
The FCA launched an investigation into the motor finance market in April 2017 following concerns about the rapid growth in car loans.
It found motor dealers were not giving customers complete or clear information about their loans.
The FCA said a number of motor finance lenders were not complying with the rules on assessing creditworthiness, including affordability.
The regulator is now “assessing the options for intervening in the market, which would address the harm it has identified”. This includes considering changes to the way motor dealers earn a commission.