The Background

In January 2024, the Financial Conduct Authority (FCA) launched a review into whether consumers had been overcharged due to historical discretionary commission arrangements, which allowed dealers to adjust interest rates and had been banned in 2021.

At the same time, the FCA temporarily paused the requirement for lenders to respond to complaints about discretionary commission arrangements, due both to its review and ongoing court proceedings. This pause was later extended to cover complaints about non-discretionary, or fixed-fee, commission arrangements. The pause currently runs until 4 December 2025, but the FCA have proposed that it be extended until 31 July 2026.

In August 2025, the Supreme Court issued an important ruling in Johnson v FirstRand Bank. The Court confirmed that while commission payments in car finance are not unlawful in themselves, high commissions that were not properly explained to customers can create what the law calls an “unfair relationship” under the Consumer Credit Act 1974.

Following this ruling, on 7 October 2025, the Financial Conduct Authority (FCA) published a paper consulting and requesting feedback on a potential motor finance compensation scheme. The scheme could see up to £9.7 billion paid to consumers, with payments expected to begin in 2026.

Commission Models

Prior to 2021, there were two main commission models used by car finance lenders: discretionary commission models, and non-discretionary commission models, which are sometimes referred to as fixed fee commissions.

Discretionary commission arrangements
Under a discretionary commission arrangement (DCA), the car dealer or broker had the ability to set the interest rate charged on your finance agreement within a certain range. The higher the interest rate they chose, the more commission they earned. This meant that dealers were financially motivated to increase borrowing costs, resulting in consumers like you being overcharged. The FCA confirmed in its Consultation Paper CP25/27 that, before the ban, DCAs were involved in around 61% of all motor finance agreements since April 2007. These arrangements were banned by the FCA in 2021.

Non-discretionary commission arrangements

Under non-discretionary commission arrangements, the dealer or broker received a fixed payment from the lender for arranging the finance, regardless of the interest rate charged. This type of commission did not allow the dealer to adjust the customer’s interest rate.

Non-discretionary arrangements are less likely to have resulted in a car finance agreement being mis-sold. However, they may still be considered unfair if commission was high in comparison to the total cost of credit (≥35%) and total loan amount (≥10%) or, if the lender had an exclusivity or right of first refusal agreement in place with the car dealership that may have limited your choice.