Introduction: Why this matters now

Car finance has become the dominant way for UK drivers to buy their cars. More than 90 percent of new cars are purchased using finance [1], most commonly through Personal Contract Purchase (PCP) or Hire Purchase (HP) agreements arranged at the dealership. On the surface these agreements seem straightforward, but beneath them lay a hidden practice that regulators have now ruled unfair: the car finance undisclosed commission.

An undisclosed commission is a payment that a lender makes to a dealer/broker that the consumer is not told about. Often, these payments reward the dealer with an incentive to hike the customer's interest rate. Between 2007 and January 2021, millions of agreements were structured this way.

In August 2025 the Supreme Court held that dealers are not fiduciaries but excessive or undeclared commissions can still be unfair. The Financial Conduct Authority (FCA) has responded with a six-week consultation starting October 2025 to design a possible redress scheme. Early estimates suggest that for DCA finance claims, the average payout may be around £950, though some drivers could receive much more.

This article explains what is undisclosed commission, how it operated, why it caused consumer harm, the regulatory and legal background, and what consumers can do now. It also links to more detailed cluster guides for readers who want to explore each topic further.

What is undisclosed commission?

At its core, an undisclosed commission is simple: a lender pays the dealer or broker a fee for arranging finance, but the customer is not told.

The issue is lack of transparency. The customer thought the dealer was doing them a favour, when in fact the dealer's financial incentives often worked against them.

Two types of undisclosed commissions were common [2]:

• Fixed commission – A set amount paid for each agreement, for example £300, regardless of the interest rate.
• Discretionary commission arrangement (DCA) – A structure where the dealer could set the interest rate within a band, and their commission rose if they chose a higher rate.

Both types harmed consumers, but DCAs were considered the most damaging because they linked customer cost directly to dealer profit.

How undisclosed commissions worked

Fixed commissions

Fixed commission agreements were straightforward. A dealer might earn £250 for every car financed with a particular lender.

The harm lies in non-disclosure.

If the consumer was not told that commission was being paid, they could not assess whether the dealer’s recommendation was unbiased.

Even without rate inflation, this can create an unfair relationship under the Consumer Credit Act 1974.

Discretionary commission arrangements (DCAs)

DCAs went further. The lender would authorise a rate band, for example 6% to 12% APR. The dealer had discretion to choose the rate. The higher the chosen rate, the more commission they earned.

Imagine a £15,000 PCP deal over four years:

• At 7% APR, the total repayable is around £17,241.
• At 11% APR, the total rises to about £18,609.
• That means the family ends up paying roughly £1,367 more in interest at the higher rate.

For a deeper explainer with worked examples, see: Discretionary Commission Arrangements: What You Need to Know

Discretionary Commission Arrangement vs Undisclosed Commissions

The terms undisclosed commission and discretionary commission arrangement are often used interchangeably, but they are not the same.

• Undisclosed commission covers all hidden payments from lenders to dealers or brokers [3]. It includes both fixed fees and rate-linked commissions. The harm is about lack of transparency.
• Discretionary commission arrangement (DCA) is a subset. It is always an undisclosed commission, but with an added layer of detriment: the dealer actively sets the rate, and the commission grows when the APR grows.

This distinction matters because the legal tests and potential outcomes differ.

A fixed commission non-disclosure may still count as unfair under the Consumer Credit Act 1974.

But the strongest claims often involve DCAs, because they show a clear conflict of interest.

The Supreme Court ruling reinforced this. It found that non-disclosure alone does not automatically make an agreement unfair, but where a dealer inflated a rate for profit and failed to disclose the link, an unfair relationship may exist.

For a direct comparison and more practical examples, see: Discretionary Commission Arrangement vs Undisclosed Commissions

Car finance history and the growth of commission

The rise of PCP

• Before the mid-2000s, many consumers used personal loans or HP directly with banks.
• From 2007 onwards, PCP exploded in popularity. Drivers liked the lower monthly payments and the ability to change cars every 3–4 years.
• By 2019, more than 80 percent of new cars were bought on PCP [4].
• Dealers soon realised they made more profit from arranging finance than from selling the cars themselves. Commission became central to their business model.

Why commission structures spread

• Lenders competed for dealer partnerships by offering attractive commission schemes.
• Dealers quickly learned that pushing higher APRs meant higher income.
• For many this became standard procedure.

International comparison

• United States: Under "Truth in Lending" laws, cost breakdowns were required.
• Europe: Some regulators cap broker fees or require more disclosures.
• UK: Lagging behind, with DCAs thriving until 2021.

Why this harmed consumers

Lack of transparency

Customers assumed the dealer got the best deal when in reality the dealer was being compensated to push the APR higher.

Real financial cost

The numbers add up quickly:

• £10,000 over 4 years at 7% APR = £11,494 total.
• £10,000 over 4 years at 11% APR = £12,406 total.
• Extra paid = £912.

Scale this across millions of agreements, and the collective overpayment is enormous.

Legal unfairness

The Consumer Credit Act 1974 allows courts to strike down agreements that create an “unfair relationship.” Non-disclosure of commission is one of the clearest bases for unfairness, especially when tied to inflated costs.

Regulatory and Legal Background

Consumer Credit Act 1974 and "unfair relationships"

The legal basis for most unidentified commission claims is the Consumer Credit Act 1974 (CCA) [5]. That law covers all UK consumer credit agreements including PCP and HP. It has the strongest feature of the "unfair relationship test," introduced in later amendments. It allows courts to step in if the terms or the manner in which a credit agreement was sold result in an unfair outcome for a consumer.

This test includes non-disclosure of commission. A consumer can not say whether the recommendation they got was impartial unless they know the dealer has a financial incentive. Courts have held that even if the interest rate isn't extreme, hiding commission creates unfairness. This is especially true where the commission is high relative to the cost of borrowing.

Early Financial Ombudsman Service (FOS) cases

Before the regulator acted, individual consumers had already started complaining. The Financial Ombudsman Service dealt with hundreds of early complaints about car finance between 2018 and 2020. The Ombudsman often upheld such cases finding lenders should have been more transparent. These were not court decisions that became law, but they told lenders and consumer groups that non-disclosure was a systemic problem.

The FCA’s motor finance review

In 2015, the Financial Conduct Authority (FCA) launched a market study into motor finance. By 2019, its final report confirmed what many suspected: discretionary commission arrangements (DCAs) were pushing up costs for drivers by an estimated £300 million per year [6]. Dealers were routinely using their discretion to select higher APRs, knowing this would increase their commission.

The FCA called this a clear conflict of interest and opened a consultation on banning the model. Consumer groups strongly supported the move, pointing out that PCP had become the default way of buying cars, and hidden commissions affected millions of households.

The 2021 DCA ban

Following consultation, the FCA announced that from January 2021, lenders could no longer pay brokers or dealers commission linked to the interest rate charged [7]. This marked a permanent change in remuneration rules. Flat-fee and volume-based payments were still allowed, but any structure that rewarded higher APRs was prohibited.

This reform stopped new harm but left an enormous legacy problem: what about the millions of agreements signed between 2007 and 2021 that used DCAs? That is the basis for today’s undisclosed commission claims.

Read more detail in the dedicated guide: FCA Car Finance Investigation and Discretionary Commission Ban

Court challenges and appeals

After the ban, litigation quickly followed. Borrowers argued that their agreements were unfair under the CCA because of non-disclosed commission.

High Court cases (2022-2023): Some early judgements were mixed wherein some judges ruled for lenders and some for consumers.

Court of Appeal (October 2024) [8]: The Court explained non-disclosure can create an unfair relationship where commission levels are high. This gave life to thousands of unresolved complaints.

The Supreme Court ruling (August 2025) [9]

The Supreme Court decision is now the standard. Its key points were:

• No fiduciary duty: Dealers aren't trustees of the customer's interests.
• Non-disclosure isn't necessarily unfair: Failing to disclose commission does not mean a claim will succeed.
• Unfairness varies by scale and context: If the commission was especially large or the dealer deliberately inflated the rate, the court may still find the agreement unfair.

This confined the scope of claims but kept strong DCA finance claim cases alive. Consumers with inflated APRs tied to commission remain strongly positioned.

FCA consultation on redress (expected 2025–2026) [10]

Following the Supreme Court ruling in August 2025, the FCA announced that it will launch a six-week consultation in October 2025 to consider how a redress scheme might work. During this period, the FCA has paused the obligation on lenders to respond to consumer complaints.

As a result, lenders are not required to issue a final response until 4 December 2025 [11]. This pause gives the regulator time to gather evidence and propose a fair, consistent approach to redress. Consumers, however, can still submit complaints now to protect their position.

Industry briefings suggest that for discretionary commission arrangement (DCA) finance claims, undisclosed commission claims average payout​ may be around £950 per agreement, though final details will depend on the outcome of the consultation. Some borrowers, particularly those with larger loans or multiple agreements, could see compensation well above the average, while others may receive less.

Timeline of events

• 2007–2010: PCP becomes the dominant finance method. Commission-based sales grow.
• 2015: FCA launches a review into motor finance.
• 2019: FCA finds DCAs cost consumers £300m annually.
• Jan 2021: FCA bans DCAs. Commission can no longer be linked to interest rates.
• 2022–2023: First batches of complaints went to the Financial Ombudsmen Service.
• Oct 2024: Court of Appeal confirms non-disclosure can be unfair.
• Aug 2025: Supreme Court ruling narrows claims but confirms unfairness in cases of large commissions.
• Oct–Dec 2025: FCA will run a six-week redress consultation. During this period, lender complaint responses are paused until 4 December 2025.
• 2026 onwards: Scheme expected to begin. Consumers receive refunds.

How to check if you were affected

Many drivers are unsure whether their finance deal included an undisclosed commission. The good news is that there are practical steps you can take.

Locate your paperwork

Find your PCP or HP agreement from 2007–2021. These are the years when DCAs and undisclosed commissions were most common.

Check for disclosure

Look carefully for any statement about dealer commission. Most agreements contain none or use vague wording that did not make the payment clear.

Examine your APR

Was it unusually high compared to typical market rates for your credit profile at the time? If so, your dealer may have inflated the rate to increase commission.

Seek details from the lender.

Ask your lender whether commission was paid and if it was tied to the APR. That is their obligation to you.

Submit a complaint

For those who suspect your deal contained a DCA or undisclosed commission, file a formal complaint now. This protects your position and may get you redress faster.

How to claim compensation

There are currently two main routes to redress, depending on whether you prefer to act now or wait for the FCA scheme.

FCA redress scheme (expected 2026)

• Coverage: Millions of agreements between 2007 and 2021.
• Compensation calculation: Refund of excess interest paid, plus simple interest.
• Average payout: For DCA finance claims, early estimates suggest around £950 per agreement [12]. Some consumers may receive much more if their APR was heavily inflated or if they had multiple agreements.
• Process: The scheme will provide a centralised, standardised route, which will reduce the need for individual complaints. However, details will only be finalised once the FCA completes its consultation (October–December 2025).

Individual complaints (DCA finance claim)

For those who want to act now rather than wait for the FCA’s scheme:

• Step 1: Make a complaint directly to your lender that your agreement included an undisclosed or discretionary commission.
• Step 2: If rejected or no response, escalate complaint to Financial Ombudsman Service (FOS).
• Strength: This route is particularly effective for DCA claims, where APR inflation is clear and evidence shows the dealer had discretion.
• Support options: While consumers can make complaints themselves, many choose to instruct finance claims experts or claims management companies to handle the process. These firms specialise in identifying evidence of undisclosed commissions, managing correspondence with lenders, and ensuring complaints are escalated correctly. They may charge a fee for their services, but they can save time and reduce stress for consumers who are unfamiliar with financial or legal processes.

Real-world examples

These real legal cases show how undisclosed commissions created unfair outcomes for consumers:

Fixed Commission (2018) [13]

A dealer got an undisclosed £400 flat commission. A partial or unclear disclosure was not sufficient, and the consumer had been misled about the dealer's independence, the Court of Appeal held. The court found this created an unfair relationship under the Consumer Credit Act.

Extreme Commission Case (2025, Supreme Court) [14]

In Johnson v FirstRand the commission was 55% of the cost of credit. The Supreme Court held that the combination of excessive commission and weak disclosure made the agreement unfair. This case is now the key precedent for undisclosed commission claims, especially where the APR was inflated for profit.

FAQs

What is undisclosed commission?

A hidden or undisclosed commission is a fee paid by a lender to a dealer or broker when arranging car finance. The issue is not that commission exists, but that customers were not told about it in a way they could understand. Without this knowledge, you could not compare deals properly or know whether the dealer was recommending finance for your benefit or their own.

How does a discretionary commission arrangement work?

In a discretionary commission arrangement (DCA), the dealer sets your annual percentage rate (APR) within a band. Your commission goes up the higher your rate is. This caused an actual conflict of interest and is one of the strongest grounds for redress today.

Are all undisclosed commissions DCAs?

No. DCAs are a subset of undisclosed commissions. While all DCAs involve non-disclosure, not every undisclosed commission is discretionary. For example, if a dealer earned a flat £300 per agreement without disclosure, that is an undisclosed commission but not a DCA.

How much compensation do people usually get for undisclosed commission claims?

Industry estimates suggest that undisclosed commission claims average payout will be around £950 per agreement for DCAs. However, this is only an average. Consumers with larger loans, longer terms, or multiple agreements could receive significantly more. Compensation is typically calculated as the difference between the rate paid and the fair rate, plus simple interest.

Can I still make a claim if I no longer have the car?

It does not matter whether you still have the vehicle. What counts is the finance agreement itself. If your deal included an undisclosed commission, you can still claim back the extra costs you paid, even if the car was sold or returned years ago.

What if I had more than one finance agreement?

Every separate agreement can form the basis of a claim. So if you changed cars regularly between 2007 and 2021, you may be entitled to compensation on more than one deal. It is worth checking each agreement, as the commission could have been different every time.

Does the redress scheme cover vans or motorcycles?

Yes. The issue is not limited to cars. PCP and HP agreements for vans and motorcycles were often set up in the same way, with undisclosed commissions built in. If you used dealer-arranged finance for these vehicles, you could still be eligible to claim.

What happens if my dealer has gone out of business?

The claim rests with the lender, not the dealer. Even if the dealership is no longer trading, the finance company is responsible for addressing unfairness.

Will claiming affect my credit rating?

No. Complaining about undisclosed commissions does not appear on your credit file. It is about reclaiming money you should not have paid, not about missed payments.

Can both joint borrowers claim compensation?

Yes. If your finance agreement was in joint names, both parties are entitled to benefit from the refund.

What if I refinanced during my agreement?

You may still have a valid claim. The existence of an undisclosed commission in the original deal remains relevant even if you refinanced later. In some cases, refinancing introduced additional commissions.

How do I actually start a claim?

• Gather your paperwork.
• Write to your lender asking whether commission was paid and how it was calculated.
• If no response or an unsatisfactory response, escalate to the FOS.
• Alternatively, you can wait for the FCA redress scheme. Complaining now, however, protects your position.

Should I wait for the FCA scheme or act now?

There are pros and cons. Waiting means you are likely to be covered automatically. Acting now secures your position and could lead to earlier compensation. Many consumer groups advise lodging a complaint now and then monitoring the scheme’s progress.

What if my agreement was with a subprime lender?

Subprime lenders also used undisclosed commissions, often with even higher APR uplifts. If you were already paying more because of your credit score, the extra increase from a DCA may have been substantial. These cases could lead to higher compensation.

How long will the process take?

• Individual complaints: You can submit a complaint now, but lenders are not required to respond until 4 December 2025 because of the temporary pause agreed with the FCA. After that date, lenders will need to provide a final response within the usual timeframes.
• FCA scheme: Payments are expected to start in 2026 and may run into 2028, given the number of claims.

Future outlook

Car finance undisclosed commission scandal is one of the largest consumer finance issues since PPI mis-selling. That impacts and will shape UK financial services for years:

• Regulators will enforce tougher disclosure rules across lending markets.
• Dealers and brokers will face tougher compliance checks.
• Consumers might find similar redress schemes in mortgages, personal loans and insurance add-ons.
• For individuals, the biggest step is to act now: review your paperwork, lodge complaints and get updates on the FCA consultation.

Conclusion

Unseen commission claims underscore the need for greater transparency in consumer finance. Millions of drivers paid more than they should have, whether in hidden fixed fees or discretionary commission arrangements.

Not all claims will succeed, but strong DCA finance claims remain valid. And with the FCA planning a redress scheme, consumers are closer to justice and fair compensation than ever.

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1. More than 90 percent of new cars are purchased using finance - https://www.am-online.com/news/finance/2022/11/02/uk-car-finance-debt-soars-to-40bn
2. Two types of undisclosed commissions were common - https://www.moneysavingexpert.com/news/2025/08/car-finance-supreme-court-martin-lewis/
3. Undisclosed commission covers all hidden payments from lenders to dealers or brokers - https://www.which.co.uk/news/article/hidden-car-finance-commission-refunds-what-you-need-to-know-aN3vX1G1tKae
4. By 2019, more than 80 percent of new cars were bought on PCP - https://www.motortrader.com/motor-trader-news/automotive-news/rising-pcp-sales-help-drive-used-car-market-2019-15-01-2019
5. The legal basis for most unidentified commission claims is the Consumer Credit Act 1974 (CCA) - https://www.legislation.gov.uk/ukpga/1974/39/contents
6. discretionary commission arrangements (DCAs) were pushing up costs for drivers by an estimated £300 million per year - https://www.fca.org.uk/publication/multi-firm-reviews/our-work-on-motor-finance-final-findings.pdf
7. FCA announced that from January 2021, lenders could no longer pay brokers or dealers commission linked to the interest rate charged - https://www.fca.org.uk/news/press-releases/fca-ban-motor-finance-discretionary-commission-models
8. Court of Appeal (October 2024 - https://www.linklaters.com/en/knowledge/publications/alerts-newsletters-and-guides/2024/october/29/court-of-appeal-decision-on-commission-disclosure-opens-door-to-more-consumer-claims
9. The Supreme Court ruling (August 2025) - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
10. FCA consultation on redress (expected 2025–2026  - https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers
11. lenders are not required to issue a final response until 4 December 2025 - https://www.fca.org.uk/news/statements/firms-given-until-december-2025-respond-motor-finance-commission-complaints
12. For DCA finance claims, early estimates suggest around £950 per agreement - https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers
13.  Fixed commission (2018) - https://www.hsfkramer.com/notes/bankinglitigation/2024-posts/Court-of-Appeal-finds-lender-liable-in-motor-finance-broker-commission-cases-
14.  Extreme Commission Case (2025, Supreme Court) - https://www.lewissilkin.com/insights/2025/08/supreme-court-rules-in-undisclosed-commissions-case-102kzma