The U.K. Financial Conduct Authority, or FCA, will ban motor finance discretionary commission models from Jan. 28, 2021.
The regulator said that the ban was due to the current system giving motor finance dealers an incentive to raise finance costs by giving them higher commissions.
Additionally, the FCA will introduce changes so that customers are aware of the commission they pay.
It said that the firms have not given their customers timely and relevant information, which has prevented them from making appropriate decisions.
The ban is estimated to save customers £165 million a year, according to the FCA.
Firms were granted additional time to implement the ban due to the operational pressures faced caused by the coronavirus outbreak.