The Background

In January 2024, the Financial Conduct Authority (FCA) launched a review into whether consumers had been overcharged due tohistorical 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, although it may be extended further.

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, the FCA announced its intention to consult in early October 2025 on an industry-wide redress scheme. If approved, payments are 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, 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 publication Our work on motor finance – final findings that on a typical motor finance agreement of £10,000, a discretionary commission arrangement could result in a consumer overpaying by £1,100. 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 the commission was disproportionately large compared with the total cost of borrowing.