The FCA said commission models allowing brokers discretion in setting the customer interest rate are in widespread use.

“We found that some motor dealers are overcharging unsuspecting customers over £1,000 in interest charges in order to obtain bigger commission payouts for themselves,” said Jonathan Davidson, executive director of supervision for retail at the FCA.

“We estimate this could be costing consumers 300 million pounds annually. This is unacceptable and we will act to address harm caused by this business model,” Davidson said.

It said it was assessing options for intervening, including banning certain commission models and limiting broker discretion.

“It is not clear to us why brokers should have such wide discretion to set interest rates or to adjust the rate to, in effect, pay themselves more commission,” the FCA said.

But Adrian Dally, head of motor finance at the Finance & Leasing Association said the FCA’s findings were based on outdated information.

“We look forward to working with the FCA as it modernises its regulations in line with market best practice,” he said.

Sarah Nield, risk and regulation director at PwC, said that “if affordability checks become harder and PCP (Personal Contract Purchase) numbers drop, manufacturers must think about the impact on new car production volumes.”