Updated: 24 November 2025

Originally Published: 19 August 2025

The FCA car finance investigation has drawn huge attention because it affects millions of people who took out car loans over almost two decades. As more details have surfaced, one topic continues to confuse drivers: the difference between a discretionary commission arrangement and a fixed undisclosed commission. Both fall under the category of undisclosed commission claims, yet they operate very differently and have very different consequences for anyone thinking about making a claim.

The terms sound similar, which is why so many people mix them up. In reality, understanding the difference is one of the most important steps in working out whether you qualify for redress, which part of the FCA scheme your agreement fits into and what kind of payout you might receive once the rules are confirmed in 2026.

This guide breaks down each type in simple language. It includes real examples from how dealers used these systems in practice, and it reflects the latest updates from the FCA consultation that runs until 12 December 2025.

Why Drivers Often Mix Up the Two Commission Types

When most people arranged a PCP or HP agreement, they were shown the monthly cost, the term and whether there was a balloon payment at the end. They were not shown the commission structure between the dealer and the lender. Everything that influenced the interest rate, the commission level and the final cost of credit sat behind the scenes.

So when the FCA car finance investigation began in 2024, two terms entered the public conversation with very little context. Discretionary commission arrangement and undisclosed commission. Many news outlets used them as if they meant the same thing, which created even more uncertainty.

The truth is that they are connected but distinct. A discretionary commission arrangement gives the dealer the power to alter your interest rate. A fixed undisclosed commission is a set fee that the customer was never told about. Both involve hidden payments. Both can lead to unfair costs. Yet the way the FCA plans to treat them is not identical.

The Three Types of Mis-Selling in the FCA’s Redress Scheme

The FCA has outlined three categories of mis-selling that will sit inside the proposed redress scheme [1]. All three rely on non-disclosure, meaning customers were missing information that would have affected their decision.

1. Discretionary Commission Arrangements

Around 11.4 million agreements fall into this group [2]. Between April 2007 and 27 January 2021, many dealers were allowed to raise a customer’s interest rate within limits set by the lender. If the dealer increased the rate, the commission increased too. Customers were generally unaware this was happening. This is the category most people now associate with DCA claims because the link between interest rate and commission created an obvious conflict of interest. These arrangements were banned from 28 January 2021 [3].

2. Contractual Ties

Roughly 3.2 million agreements may have been influenced by lender ties. Some customers were told the dealer would compare a panel of lenders, when in fact the dealer was restricted to one lender or obliged to give that lender first refusal. This created the impression of choice where none existed.

3. Unfairly High Commission

About 2.9 million agreements contained very high commission that customers were not told about. The FCA has proposed two tests. The commission must be at least 35 per cent of the total cost of credit and at least 10 per cent of the loan. If both are met and the customer was kept in the dark, the agreement may have been unfair. A much smaller set of agreements may fall into the very high category where the figures exceed 50 per cent of the total cost of credit and 22.5 per cent of the loan.

Even if your agreement falls outside the three categories, you may still have been mis-sold in other ways. These include affordability failures, confusing charges or problems with the quality of the vehicle. Those sit outside the main scheme but can still form the basis of a complaint.

Quick Comparison: Discretionary vs Fixed Undisclosed Commission

A simple way to understand the difference is to look at how the two types work.

Discretionary Commission Arrangement

What it is: A system where the dealer could alter the interest rate within a set range.

Key feature: The commission changed when the dealer increased your interest rate.

Why it matters: The dealer earned more when you paid more.

Relevance to the FCA scheme: These agreements form the core of the upcoming redress structure because the link between the dealer’s income and the customer’s interest rate was so direct.

Fixed Undisclosed Commission

What it is: A flat payment to the dealer that was never mentioned to the customer.

Key feature: The commission stayed the same regardless of the interest rate.

Why it matters: It becomes claimable when the commission was unusually large and the customer was never told.

Relevance to the FCA scheme: Some of these will be eligible, but many will require detailed figures to establish whether they pass the FCA thresholds.

Both involve a lack of transparency. The central question in both cases is what the customer was told and how the hidden payment affected the fairness of the agreement.

How They Work: Real Examples

Example of a Discretionary Commission Arrangement

You qualify for a loan at a base rate of 6 per cent. The dealer increases it to 9 per cent within the range they are allowed to use. You pay the higher rate over the full term. The dealer receives a larger commission because part of the extra interest you pay is shared with them. You are not told that the dealer can change the rate or that their income depends on raising your cost.

This type of arrangement is the foundation of most DCA claims in the FCA car finance investigation.

Example of a Fixed Undisclosed Commission

A dealer is paid a flat £300 for every agreement they arrange. They cannot alter the interest rate. They earn the same money regardless of what the customer pays. However, if that £300 makes up a large share of the total cost of credit and the customer was never told, the agreement may still count as unfair. Establishing this requires a detailed breakdown of the loan.

Key Developments Shaping Claims as of November 2025

January 2021

The FCA bans discretionary commission arrangements for all new finance.

January 2024

The FCA car finance investigation begins. Complaint deadlines are paused.

October 2024

The Court of Appeal rules that lenders cannot rely on hidden commission unless customers gave informed consent.

August 2025

The Supreme Court confirms that commission in itself is not always unfair [4]. However, very large hidden commission can still breach the Consumer Credit Act. This decision tightens the scope for fixed commission claims but leaves DCA claims unaffected.

October to December 2025

The FCA consultation runs until 12 December 2025 [5]. This sets out how redress will work and how lenders must review agreements.

4 December 2025

Lenders remain under a pause for final responses until this date [6].

Early 2026

Final rules expected.

Mid to late 2026

The redress scheme is expected to go live. DCA claims will be processed first.

Expected Payouts

There is already significant interest in what people might receive. While nothing is final until 2026, early modelling suggests the undisclosed commission claims average payout for DCA agreements will sit to be around £700 on average per eligible agreement [7]. The exact figure depends on the size of the loan, the extra interest paid and how many of your agreements included a discretionary commission arrangement.

Fixed undisclosed commission claims vary far more. Some will produce meaningful refunds. Others may not meet the FCA thresholds. These cases are often handled individually, sometimes with the help of the Financial Ombudsman Service.

Which Claims Will Be Easier to Progress?

DCA Claims

DCA claims are expected to be the most straightforward. Once the FCA finalises the scheme, lenders will identify eligible customers automatically. The customer’s role will be minimal.

Fixed Undisclosed Commission Claims

These can be more involved. They may require a detailed breakdown of interest and commission. The customer may need to escalate the complaint if the lender rejects it. Some people will choose a solicitor because these claims often involve more complicated calculations.

Common Mistakes When Reviewing Car Finance Agreements

People often make the same mistakes when trying to understand their finance history.

• Believing that every undisclosed commission claim works in the same way
• Assuming they had a fixed commission when the agreement was really a DCA
• Throwing away old paperwork that could be needed later
• Using unregulated claim firms with unclear fees
• Thinking they cannot claim because the vehicle has been sold or written off

Avoiding these issues now will make things far easier when the FCA’s rules go live.

Final Thoughts

The difference between a discretionary commission arrangement and a fixed undisclosed commission matters more now than ever. The FCA car finance investigation is approaching the end of its consultation phase, and the final scheme is expected to reshape how DCA claims and other undisclosed commission claims are handled.

If your car finance was taken out between 2007 and 2024 and you were never told how the dealer was paid, your agreement may fall into one of the three mis-selling categories identified by the FCA. DCA claims are most likely to result in automatic compensation once the scheme begins. Fixed undisclosed commission cases may still succeed, but they depend on the size of the hidden commission and how clearly the lender explained it.

If you suspect your car finance was mis-sold, gathering your details now will place you in a strong position when the FCA releases its final guidance in 2026.

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References:

1. The FCA has outlined three categories of mis-selling that will sit inside the proposed redress scheme - https://www.fca.org.uk/publication/consultation/cp25-27.pdf
2. Around 11.4 million agreements fall into DCAs - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
3. DCAs were banned from 28 January 2021 - https://www.fca.org.uk/publication/consultation/cp24-15.pdf
4. The Supreme Court confirms that commission in itself is not always unfair - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
5. The FCA consultation runs until 12 December 2025 - https://www.fca.org.uk/news/statements/motor-finance-compensation-scheme-consultation-progress-and-timing
6. Lenders remain under a pause for final responses until 4 December 2025 - https://www.fca.org.uk/publication/consultation/cp24-15.pdf
7. early modelling suggests the undisclosed commission claims average payout for DCA agreements will sit to be around £700 on average per eligible agreement - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme