What are discretionary commission arrangements and why were they banned?
What is a discretionary commission arrangement?
A discretionary commission arrangement (DCA) was a payment model used widely across the UK car finance industry between 2007 and 2021. Under a DCA, the car dealer had the power to set the interest rate on your finance agreement — and the higher the rate they chose, the more commission they earned.
In simple terms, the dealer was paid more for charging you more. And in most cases, you were never told this was happening.
How did DCAs work in practice?
When you agreed to finance a car through a dealership, the lender would offer the dealer a base interest rate. The dealer could then increase this rate at their discretion. The difference between the base rate and the rate you were charged went to the dealer as commission.
Here is an example:
| Rate | Monthly payment (£15,000 over 4 years) | |
|---|---|---|
| Lender's base rate | 4.9% | £345 |
| Rate the dealer set | 9.9% | £376 |
| Extra cost to you | +5% | £1,488 over the term |
The dealer earned commission on that £1,488 difference. You paid more, and nobody told you.
Why were they banned?
The FCA identified that DCAs created a clear conflict of interest. The dealer was supposed to be acting in your best interests, helping you find a suitable finance deal. Instead, they were incentivised to charge you the highest rate they could.
After a review of the motor finance market, the FCA banned discretionary commission arrangements in January 2021. At the time, the FCA estimated the ban would save consumers approximately £165 million per year.
How many people were affected?
The scale is significant. The FCA estimates that around 44% of car finance agreements entered into since 2007 may have involved a DCA. With approximately 14 million agreements potentially in scope, the total redress could reach up to £8.2 billion including interest.
What is happening now?
In October 2025, the FCA published Consultation Paper CP25/27 proposing an industry-wide Consumer Redress Scheme. Under this scheme, lenders would be required to review affected agreements and pay compensation to consumers who were overcharged.
The complaint handling pause is set to lift on 31 May 2026, after which firms must begin processing claims.
What should you do?
If you took out car finance between 2007 and 2021, your agreement may have included a DCA. You do not need any paperwork to check — our free tool can retrieve your finance agreements in under 60 seconds, with no impact on your credit score.