If you took out car finance between 2007 and 2021, you may be entitled to compensation. The FCA’s investigation into discretionary commission arrangements has found widespread evidence that car buyers were charged higher interest rates than necessary — without being told — so that dealers could earn higher commissions. Here’s what happened, who’s affected, and what you can do about it.
What Happened
Until January 2021, many car finance agreements in the UK operated under a system called discretionary commission arrangements (DCAs). Under this system, the dealer or broker who arranged your finance had the ability to set — or influence — the interest rate on your loan. The higher the rate, the more commission they earned. Crucially, this conflict of interest was not disclosed to the customer.
The FCA investigated and found the practice widespread across the motor finance industry. It concluded that many customers paid more than they should have, and that the non-disclosure of the commission arrangement was a potential breach of consumer protection requirements.
The potential scale of the issue is significant — some estimates suggest millions of finance agreements may be affected, with an average overcharge that could run into hundreds of pounds per customer.
Who Is Affected?
You may be affected if you financed a car (new or used) in the UK between April 2007 and January 2021 using a Personal Contract Purchase (PCP), Hire Purchase (HP), or similar motor finance product arranged through a dealership or broker.
The key question is whether your finance agreement involved a discretionary commission arrangement — where the dealer had the ability to set or vary the interest rate. Not all finance agreements during this period used DCAs, but a significant proportion did. You don’t need to know the details of your own agreement to make an initial enquiry — the finance company can tell you.
What the FCA Is Doing
The FCA has required finance companies to pause their complaints handling while it determines the appropriate industry-wide approach. The Supreme Court has been involved in related legal proceedings. The FCA has indicated it will set out a redress scheme — a structured way of compensating affected customers — rather than leaving individuals to pursue claims independently.
The timeline has shifted several times, but the FCA has committed to providing clarity on the redress process. Finance companies including Lloyds Banking Group (Black Horse), Close Brothers, and others have set aside substantial provisions in anticipation of significant payouts.
What You Can Do Now
Make a formal complaint to your finance provider. Write to the finance company (not the dealer) that provided your loan, stating that you believe you may have been affected by a discretionary commission arrangement and that you’re seeking information about whether this applied to your agreement. Keep a copy of your letter and note when you sent it.
The finance company is required to acknowledge your complaint, though formal resolution is on hold pending the FCA’s determination.
Do this for each relevant finance agreement — if you’ve had multiple car finance deals between 2007 and 2021, submit a separate complaint for each one.
Be cautious about claims management companies. A significant number of firms are marketing their services to handle DCA claims on your behalf, typically taking 20–30% of any compensation as their fee. Making a complaint directly to the finance company costs nothing, and escalating to the Financial Ombudsman Service (if needed) is also free. You don’t need to pay a third party to do this for you.
The Financial Ombudsman Service
Normally, if a company rejects your complaint you can refer it to the Financial Ombudsman Service (FOS) within six months. The FCA has extended this window for DCA complaints — you have until after the FCA completes its review to refer a complaint to the FOS if your finance company rejects it. This means your rights are preserved even if you don’t hear back for a considerable period.
What Compensation Might Look Like
The FCA has indicated that redress will aim to put customers in the position they would have been in if they’d received the best available interest rate rather than the discretionary rate applied. In practice, this is likely to mean a refund of the additional interest paid, plus interest on that amount.
The actual figures will depend on the specific agreement, the difference between the rate charged and the best available rate, and the outstanding balance at the time. Estimates vary widely, but individual payouts of several hundred pounds are commonly cited for typical agreements.
Don’t Wait for Things to Be Sorted
The FCA review will ultimately produce a formal redress mechanism, but that may take further time. Making your complaint now ensures you’re in the queue and have a documented record of having raised the issue. If a redress scheme is eventually introduced, having an existing complaint on record may be advantageous. If no scheme emerges and individual claims become the route, your complaint filing date could matter for limitation purposes.
The situation continues to evolve. The FCA website and financial news sources are the most reliable places to track developments. What is clear is that this is a genuine and significant issue that affected large numbers of UK car buyers, and that the regulatory machinery is moving — however slowly — toward resolution.
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