UK consumers unknowingly paid higher interest rates on car finance agreements for years because of broker incentives called Discretionary Commission Arrangements (DCAs). Car dealers and finance brokers used these practices to generate profit by raising customer interest rates without any requirement to reveal this to the customer.

Following the FCA car finance investigation findings about extensive DCA use throughout the industry, the regulatory authorities initiated a crackdown in 2021. Thousands of drivers today find out that they were potentially mis-sold finance products which makes them eligible for DCA compensation. This guide provides information on what DCAs represent, their importance and how they affect your rights if you've been impacted.

What Are Discretionary Commission Arrangements?

At its core, a discretionary commission arrangement is a financial setup that gives brokers or dealers the freedom to adjust the interest rate on a car finance agreement and receive a higher commission for doing so.

Here’s how it worked in practice: A lender would offer a base interest rate for a vehicle loan. The broker or dealer could then increase that rate (within certain limits), and the higher the rate they set, the more commission they would earn. Customers were rarely informed of this structure and, as a result, often ended up paying significantly more than necessary.

For example, a customer might have qualified for a 5% rate based on their credit profile. But under a DCA, the dealer might increase the rate to 8%, earning a larger commission, without ever disclosing this to the buyer.

Why DCAs Were Problematic

Discretionary commission arrangements posed a serious conflict of interest. Brokers had a clear incentive to charge higher rates, regardless of whether it served the best interests of the customer. Because of insufficient transparency, many car finance products were sold incorrectly since consumers assumed their interest rate would remain constant in line with their credit scores or lender standards.

Dealers have the power to raise customer rates arbitrarily which often lacks any clear reason or explanation. This practice eroded consumer trust and violated core principles of fairness under UK financial law.

In many cases, consumers were locked into long-term agreements with unnecessarily high repayment costs, simply because the dealer stood to gain more in commission. This is the foundation for thousands of DCA claims now being reviewed or filed across the country.

The extensive adoption of DCAs transformed the UK car finance market in a significant and enduring manner. Opaque commission structures operated for years by increasing borrowing expenses for millions of consumers and disrupted the competitive transparency that should have prevailed.

Customers were frequently forced to accept higher interest rates instead of obtaining optimal deals that matched their credit profiles. Trust between consumers and dealerships along with finance providers and the entire motor finance sector, began to decline.

As a result, public confidence declined, prompting a surge in scrutiny from regulators and consumer advocacy groups. DCA-related mis-selling continues to inflict financial and reputational damage while lenders address numerous claims and work to re-establish accountability within the sector.

FCA Action and Regulatory Changes

The Financial Conduct Authority (FCA) began reviewing DCA practices in detail after mounting concerns from consumer rights groups and financial regulators. The FCA imposed an official ban on discretionary commission models across the motor finance sector in January 2021.

The ban established an essential progression toward achieving transparent and equitable car finance agreements. The new regulation required lenders to implement flat commission models which prevent brokers from adjusting rates to benefit themselves.

The UK car finance industry experienced a fundamental transformation due to the FCA’s 2021 DCA ban which changed the structure of commission payments. The ban forced lenders and brokers to undertake a full transformation of their business methods. The ban required lenders to stop providing discretionary commissions to brokers and dealers while mandating them to establish fixed commissions for all participants. The elimination of discretionary commissions led to both lower interest rate inflation and a more balanced marketplace which provided customers transparent and competitive rates.

The ban offered consumers much-needed relief by providing increased protection from concealed fees while stopping brokers from manipulating interest rates for their own benefit. The ban brought up important questions regarding resolving historical mis-selling cases. Consumers who dealt with DCAs before the prohibition became effective can seek financial redress because they were subjected to unjust charges and excessive loan expenses.

The FCA’s review didn’t end there. The Authority started a comprehensive review of historic car finance agreements in early 2024 to determine if there was widespread mis-selling by lenders. A major policy update is expected by July 2025, which may include formal guidelines for compensation and lender responsibilities.

If you believe your finance was mis-sold, now is a good time to review your documents and consider a car finance DCA claim.

Legal Cases and Consumer Protections

Multiple legal systems exist to protect the rights of consumers who have been affected. According to the provisions of the Consumer Credit Act 1974 and the Consumer Rights Act 2015, unfair terms of a business contract with a consumer and misleading a consumer are prohibited. The FCA mandates that firms must follow the Principles for Businesses which demand fair customer treatment.

Recent judicial decisions have confirmed the right to compensation where a lender or broker did not disclose commission arrangements that materially affected the price of borrowing. These legal precedents are opening the doors for winning DCA finance claims, particularly where the consumer was not made aware of the discretionary aspect of the commission.

A major judicial decision by the Court of Appeal in October 2024 extended the definition of unlawful commission practices to support consumer rights in the car finance sector. The court declared all commissions paid to car dealerships or brokers without proper consumer disclosure illegal. The judgment now covers discretionary commission arrangements (DCAs) together with all undisclosed commissions which expands misconduct definitions and raises lender liabilities.

Following the ruling, major financial institutions such as Ford's British motor finance division FCE Bank, have established significant financial reserves, including the £61 million set out by FCE Bank to cover compensation payments for the mis-selling scandal. The judiciary continues to protect consumer rights through this development which also ensures transparency in financial operations.

Can You Claim Compensation?

If you took out a car finance agreement before January 28, 2021, and were not clearly informed about broker commissions, you may be eligible to claim compensation.

A successful DCA finance claim might cover:

• Refunds of excess interest paid
• Compensation for financial loss or distress
• Removal of unfair interest from ongoing balances
  

Those who used popular providers—especially ones linked to broker-driven lending—may have a stronger case. This includes consumers asking: Which car finance companies used DCA? The lending practices of Black Horse Finance and Close Brothers Finance along with multiple small lenders have connections to these models.

Black Horse Finance was amongst the leading motor finance providers in the UK and it was a division of the Lloyds Banking Group. Between 2015 and 2021, Black Horse engaged in DCAs, where brokers and dealers received commissions linked to the interest rates charged to consumers.

Black Horse has implemented proactive measures to handle the issue following the FCA's examination and the Court of Appeal decision from October 2024 that found undisclosed commissions illegal. It has placed £1.2 billion as provision for other sundry expenditure including compensation to be paid to consumers. Black Horse shows its commitment to improve past business practices through this action while ensuring fair treatment for all customers.

The UK lender Close Brothers Finance found itself entangled in DCA practices that allowed brokers and dealers to manipulate interest rates on car loans resulting in increased commissions for them but higher costs for consumers.

According to the court decision, lenders must obtain customer consent before they can pay car dealers commissions. Close Brothers allocated as much as £165 million for the legal and compensation expenses resulting from the FCA probe and legal action and the unpredictability of the SC ruling.

Initiate your claims process by collecting the original loan contract along with all related correspondence. The finance company allows customers to submit complaints directly or to seek assistance from a specialist claims handler for formal complaint filing.

How to File a Claim for Discretionary Commission Arrangements

Here are the steps to begin your DCA claim:

1. Check Your Eligibility

The first task that you need to perform is to determine if your car financing deal was of DCA. DCAs served as standard practice from 2007 until 2021, meaning agreements from this duration are likely impacted. In case of uncertainty regarding hidden commissions in your agreement, you should request a finance contract copy from your provider or get professional help to determine if any undisclosed commissions were included.

2. Review Your Finance Agreement

You need to carefully examine your car finance agreement once you establish your eligibility. Examine your contract for the interest rate and total payable amount together with any listed commissions. Review the terms of the contract to identify any provisions for commission payments to brokers or dealers. The hidden commission fees found in contracts require thorough examination because consumers remain unaware of these charges. A solicitor or claims expert, through a detailed examination of agreement terms, will identify hidden fees that explicit details fail to reveal.

3. Gather Evidence

Gather all relevant documents, including your finance agreement, any communications with the broker or dealer, and statements outlining the terms of your car loan. Evidence of the interest rate you were charged and any payments made above the standard rate will be important to strengthen your claim. The documentation serves to prove whether the commission arrangement resulted in inflated charges for you. The claims service can help you reach out to your lender to get your needed documentation if you encounter problems obtaining your paperwork.

4. Contact Your Lender or Broker

Ask both the broker and lender an immediate claim filing process. Also, ask if there is any specific involvement of a DCA and demand full disclosure of all the commission arrangements. Lenders do create voluntary settlement procedures for DCA claims when they have already compensation funds available.

5. Submit Your Claim

After you've reached out to your lender, it's now time to make your formal claim. This will typically mean completing a claim form and including the supporting documents that are applicable. Make sure you clearly explain how the DCA affected your car finance agreement, such as how it resulted in increased interest rates or additional charges. Claims can also include compensation for emotional distress or financial distress due to the unfair charges.

The eight-week deadline for lenders to address motor finance complaints involving DCAs stands in suspension at this time. The FCA decided to continue extending the current suspension of the deadline for lenders to reply to motor finance complaints handled through DCAs until 4 December 2025. When a lender fails to respond or declines communication, you can submit the case to the Financial Ombudsman Service to get additional review.

6. Consider Using a Claims Service

You should consider hiring a claims service if the claims process feels too complex or time-consuming. Reclaim247 and similar companies manage DCA claims through evidence collection and lender correspondence while submitting proper complaints. These services charge for their work yet they help clients save time and improve their chances of winning the case especially when legal details or expert financial document understanding is needed.

Clients who are looking for refunds from defective car finance deals are provided with credible claim management services and individualised assistance by Reclaim247. Their professional staff specialises in motor finance mis-selling cases and guides clients through complex official complaint procedures with a successful remedy. Their experts take care of every phase of the claim—from reclaiming documents to dealing directly with lenders—while keeping you informed at each stage. This ensures your case is built with strong supporting evidence to stand up under scrutiny.

Reclaim247 operates on a "no win, no fee" basis whereby the clients only pay once their claim has been won. This consumer-friendly approach thus reduces risks and barriers to securing compensation for people. Through Reclaim247, you receive the peace of mind that comes from working with seasoned experts who ensure drivers receive fair treatment throughout the UK. 

7. Be Prepared for the Outcome

The lender or financial institution will require several weeks to evaluate your submitted claim. When claims are successful, they result in reimbursements for overpaid interest and awards for distress suffered by the claimant. Should your claim face rejection, you possess the right to contest the decision through an appeal which can be initiated with the Financial Ombudsman Service or pursued via legal means. It is important to know both the subsequent steps and your available choices after an unsuccessful claim.

Notably, the UK Supreme Court recently concluded a pivotal hearing on the legality of undisclosed commissions in car finance agreements. The outcome of this case could lead to significant changes in the industry, potentially resulting in one of the largest consumer compensation events since the PPI scandal.

How to Appeal Discretionary Commission Claim Decisions

Do not stop pursuing your claim if it has been rejected or undervalued. You have the right to appeal. Below are the steps to follow.

• Check the reason for refusal. Some rejections are based on technicalities or incomplete information. Examine the lender’s explanation with care to determine the reason behind your claim denial. The denial might result from unsubmitted documents together with ambiguous evidence or incorrect interpretation of contractual stipulations. Your appeal becomes stronger after you correct your original submission's deficiencies once you figure out why your claim was denied.
• Request a subject access request (SAR). The request gives you complete access to your lender's data related to your finance agreement. Through a SAR, you can access all personal data that the lender maintains about you which includes internal notes, communications with you as well as the specifics of your finance agreement setup. The information reveals whether a discretionary commission occurred and clarifies its impact on your interest rate. Unrevealed pertinent information from your lender could serve as crucial evidence during your appeal process.
• Submit an appeal to the FOS. Provide as much evidence as possible, including how the commission impacted your financial terms. If the responses from the lenders do not reach your satisfaction standards, you may need to resort to appealing directly to the FOS. Your appeal document should describe detailed accounts of complaint with all documentation and facts including how you might have been deceived in payment amount by the respective hidden commission setup. The Financial Ombudsman Service evaluates the lender's conduct to determine fairness and can mandate compensation when it discovers a consumer experienced misleading treatment.

Appeals can take several months but often result in better outcomes—especially when backed by legal or claims professionals familiar with discretionary commission agreements.

Related Guides from Reclaim247

Want to learn more? Explore these helpful articles from reclaim247.co.uk:

• Why the FCA Took Action Against Discretionary Commission Arrangements
• Discretionary Commission Arrangements Explained: Compensation and Calculations

These resources expand on the FCA’s legal basis for the ban, how compensation is calculated, and what to expect if you pursue a claim.

Conclusion

UK car finance industry restructured its operations when the FCA took action regarding discretionary commission arrangements. Individuals who signed finance contracts before 2021 and paid excess charges are eligible for compensation rights.

Consumers initiate financial redress through understanding their agreements and identifying unfair practices so they can exercise their rights. Review your finance agreement now and reach out to specialists for assistance if required.