Currently, some motor finance brokers receive commission which is linked to the interest rate that customers pay.

The broker can set that rate and the FCA found that the widespread use of this type of commission creates an incentive for brokers to act against customers’ interests.

The FCA estimates the changes would save customers £165 million a year.

Preventing the use of this type of commission would remove the financial incentive for brokers to increase the interest rate that a customer pays and give lenders more control over the prices customers pay for their motor finance.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “We have seen evidence that customers are losing out due to the way in which some lenders are rewarding those who sell motor finance. By banning this type of commission, we believe we will see increased competition in the market which will ultimately save customers money.”

Citizens Advice Scotland’s Financial Health spokesperson, Myles Fitt, said: “The fact that some car dealers increase consumers’ interest rates just so they themselves can benefit from a commission bump is outrageous.

“As motor finance options are on the up through schemes like contract purchases this is the time to make sure consumers are adequately protected against these conflicts of interests.

“As Scotland’s consumer champion, Citizens Advice Scotland welcomes the steps being taken by the FCA. They will ultimately create greater transparency for consumers, encourage more competition in the market and make sure consumers get a fairer deal when buying a car.”

The FCA is also proposing to make changes to the way in which customers are told about the commission they are paying to ensure that they receive more relevant information.

These changes would apply to many types of credit brokers and not just those selling motor finance.