Are you unsure whether the commission on your car finance was discretionary or fixed? Confused by terms such as “discretionary commission arrangement” and “undisclosed commission”? Wondering if your car finance agreement may be eligible for compensation under the FCA car finance redress scheme?
Although often used interchangeably, discretionary and fixed commission aren’t the same thing. Put simply, discretionary commission arrangements (DCAs) allowed car dealers to raise your interest rate to earn more commission. Meanwhile, fixed commission paid the dealer a set amount regardless of the interest rate.
In this blog, we explore discretionary, undisclosed and fixed commission in greater detail – and explain why the distinction is crucial for your car finance compensation claim.
What is a discretionary commission arrangement?
A discretionary commission arrangement (DCA) was a commission model widely used in car finance before it was banned in January 2021. Under this arrangement, a broker or dealership could influence the interest rate you were offered. In many cases, the higher the interest rate, the more commission the broker received from the lender.
As part of its investigation, the FCA found this created a conflict of interest because customers were often unaware that the person arranging the finance could benefit financially from increasing the rate they paid. This led to DCAs being banned.
What is undisclosed commission?
Undisclosed commission is a broader concept. It refers to situations where you weren’t clearly informed that commission would be paid to the broker or dealership arranging your finance agreement.
Unlike a DCA, undisclosed commission does not necessarily involve brokers having control over the interest rate. Instead, the question here is whether you received fair and transparent information about the commission arrangement before agreeing to the finance.
What is fixed commission?
Fixed commission is where the dealer was paid a set amount for arranging your finance. This amount was agreed in advance and didn’t increase if your interest rate increased. As a result, the dealer wasn’t incentivised to influence your rate.
That said, just because the commission on your car finance was fixed, it doesn’t automatically follow that it was fair. Fixed commission can still be relevant when considering a potential compensation claim in cases where the commission wasn’t clearly disclosed, or if the level you paid was exceptionally high. More on that below.
What types of car finance commission could be eligible for compensation?
The FCA’s investigation into motor finance has highlighted three main types of arrangement that could potentially lead to compensation claims. They all relate to ways that you may not have been given clear, fair or transparent information when taking out car finance.
- Discretionary commission arrangements (DCAs) – Banned in January 2021, DCAs have received the most media attention. As explained above, it’s where brokers or dealerships could increase the interest rate on your finance agreement and earn more commission as a result. Unsurprisingly, this is the most best-known type of car finance compensation claim.
- Undisclosed lender relationships – This relates to finance agreements where you may have believed you were being offered a range of finance options, when in fact the broker or dealership was limited to certain lenders, or encouraged to prioritise one lender over another. If this was not explained clearly, it could form part of a complaint.
- Unfairly high undisclosed commission – Commission is common in car finance agreements. However, concerns arise where the commission paid was high and not properly disclosed. The FCA has indicated that some agreements (including those with fixed commission rates) may be considered “high commission” where the commission exceeded 39% of the total cost of credit and more than 10% of the amount borrowed.
Why the difference between discretionary and fixed commission matters
Importantly, not every car finance agreement will qualify for compensation. But many people mistakenly assume they can only make a claim if they had a discretionary commission arrangement – and that isn’t the case.
Whether you may have a valid complaint will depend on the type of commission involved, how clearly it was explained to you, and the individual circumstances of your agreement. It doesn’t rest on whether the commission was discretionary or fixed.
How to check if you may have been affected by mis-sold car finance
You may wish to look into your agreement further if:
- You took out your car finance between 6 April 2007 and 1 November 2024
- The finance was arranged through a dealership or broker
- You weren’t aware commission would be paid
- You can’t recall the commission arrangement being clearly explained
Many consumers simply trusted that the finance being offered was suitable and competitively priced, without realising commission structures were involved behind the scenes.
Unsure if you have a valid car finance claim?
If you’re unsure whether your car finance agreement could be affected, you can contact your lender directly to ask about the type of commission arrangement that was used – and whether commission was paid to the broker or dealership.
You don’t need to use a solicitor to make a complaint or pursue compensation. Many people choose to approach the lender themselves in the first instance. However, some people find legal advice useful, particularly in complex cases, where the paperwork is unclear, or where they’re unsure how the FCA’s guidance applies to their agreement.
At Harrington Sinclair Law, we’re committed to making justice accessible to everyone and handle eligible claims on a no-win, no-fee basis. If you’d like an initial chat about your options, our team would be happy to help. There’s no obligation to proceed, and we can simply talk you through the process so you can decide what feels right for you.
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Simply use the link below to give us a few details and we’ll be in touch. There’s no obligation to go ahead – and no fees if your claim isn’t successful.
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