.png)
Hidden commission in car finance affected an estimated 40% of all agreements taken out before January 2021. If a dealer was paid a commission you did not know about — and that commission influenced your interest rate — you may have been overcharged. Here is exactly how it worked.
Find out if you have mis-sold car finance claim.
When you financed a car through a dealership, the transaction looked simple: you agreed a monthly payment, signed the paperwork, and drove away. What most people did not know was that the dealer was also earning a payment from the lender for arranging the deal — and in many cases, they had the power to increase that payment by charging you a higher interest rate.
This arrangement, known as a discretionary commission arrangement (DCA), was common practice in the motor finance industry for more than a decade. It was finally banned by the Financial Conduct Authority in January 2021. But for millions of customers who financed cars between April 2007 and January 2021, the damage had already been done.
Check If You're Owed £1,000s | Mis-Sold Car Finance Claim | PCP Claim Experts
What Is a Discretionary Commission Arrangement (DCA)?
A discretionary commission arrangement is a payment structure in which a lender pays a broker or dealer a commission for arranging a finance deal — and the size of that commission is tied to the interest rate charged to the customer.
In practice, lenders would offer dealers a range of interest rates — say, 5% APR at the low end and 14% APR at the high end. The dealer was free to offer the customer any rate within that range. The higher the rate they chose, the more commission they earned. The customer had no idea this was happening and no way to negotiate against it.
The FCA estimated that around 40% of car finance agreements in the period covered by the investigation involved a DCA. Given the scale of the motor finance market, this translates to millions of individual agreements and billions of pounds in excess interest charges.
How Did Hidden Commission Affect the Interest Rate You Paid?
Consider this example. A lender tells a dealer that the standard rate for a customer with your credit profile is 7% APR. The dealer has discretion to offer you anything from 6% to 13% APR. If they offer you 6%, they earn a small commission. If they offer you 11%, they earn a commission several times larger.
A difference of 5 percentage points on a £12,000 car finance agreement over four years adds up to roughly £1,200 to £1,500 in additional interest payments. That extra money came directly out of your pocket and into the dealer's commission payment — without your knowledge.
The FCA found that there was no legitimate reason for the customer to pay a higher rate in these cases. The dealer was not providing any additional service that warranted extra compensation. The sole purpose of the DCA was to allow dealers to earn more by charging customers more.
Why Was This Considered Unfair?
The FCA's position is clear: a commission arrangement that creates a conflict of interest between a dealer and their customer — and which is not disclosed to that customer — is a breach of consumer protection rules. Customers have a right to know when the person arranging their finance has a financial incentive to charge them more.
The principle of fairness in financial services requires that customers be treated honestly and that material information — including commission arrangements — be disclosed before a deal is agreed. In the vast majority of DCA cases, this did not happen.
The October 2024 Court of Appeal ruling went further, finding that even fixed commission arrangements could be unlawful if customers had not given their fully informed consent. This significantly widened the pool of potentially affected customers beyond those who had DCAs.
What Changed After the FCA Ban in 2021?
The FCA banned discretionary commission arrangements in January 2021 through Policy Statement PS20/8. From that date, lenders could no longer allow dealers to set interest rates on a discretionary basis. Commission could still be paid, but it had to be at a fixed rate that did not vary with the interest rate charged to the customer.
The ban was an important step, but it did not address the harm already caused by years of DCAs. The FCA's subsequent investigation focused on that historical harm — and the result is the redress scheme now being designed to compensate affected customers.
Find out about the FCA redress scheme.
What About Fixed Commission Arrangements After 2021?
The picture became more complex following the Court of Appeal ruling in October 2024. The court found that even fixed commission arrangements can be unlawful if the customer was not given proper disclosure and did not give informed consent. This extended the scope of potential claims to agreements made after the DCA ban.
The FCA's redress scheme is primarily focused on the pre-2021 period and DCA arrangements, but the legal landscape is evolving. PCP Missold monitors all developments and will advise customers accordingly.
Check If You're Owed £1,000s | Mis-Sold Car Finance Claim | PCP Claim Experts
What This Means for Your Claim
If your car finance agreement was taken out between April 2007 and November 2024 and involved a commission arrangement that was not disclosed to you, you may be entitled to compensation. The compensation is designed to put you back in the position you would have been in had you been charged a fair interest rate.
For DCA cases, this typically means a refund of the excess interest you paid, plus interest calculated at the Bank of England base rate plus 1% from the date of overpayment.
Ready to find out if you qualify? Estimate your payout.
Check If You're Owed £1,000s | Mis-Sold Car Finance Claim | PCP Claim Experts
