Guide to Discretionary Commission Arrangements and average payouts in mis-sold car finance
Discretionary Commission Arrangements (DCAs) have been a major issue in the UK car finance market. For years, lenders allowed brokers and dealerships to set their own interest rates, often prioritising commission over fairness. The Financial Conduct Authority (FCA) banned this practice in 2021, but millions may still be owed compensation.
What Are Discretionary Commission Arrangements?
DCAs allowed car dealerships and brokers to increase the interest rate on finance deals. The higher the interest rate, the more commission the dealer received from the lender. Customers were rarely aware of this, leading to overpayments on car loans.
The FCA’s 2021 ban stopped dealers from setting interest rates based on commission incentives. However, many past agreements were mis-sold, meaning consumers may be eligible for refunds. If your deal included a discretionary commission, you could claim compensation.
How Do You Know If You Were Affected?
If you took out a car finance deal before 2021, you may have been overcharged. Key signs include being unaware of commission payments or noticing higher-than-expected interest rates. Affected finance agreements include Personal Contract Purchase (PCP) and Hire Purchase (HP) deals.
Your agreement should have disclosed any commissions earned by the dealer. If this information was hidden or unclear, the deal may have been mis-sold. Checking your finance documents or contacting the lender can help confirm whether you are eligible to claim. Many consumers have turned to experts like Martin Lewis for advice on PCP claims, as this type of finance was widely mis-sold.
What Are the Average Payouts for Mis-Sold Car Finance Claims?
Compensation amounts vary depending on how much you overpaid due to inflated interest rates. Some claimants have received refunds between £1,000 and £10,000, depending on their loan size. The Financial Ombudsman Service (FOS) has ruled in favour of consumers in multiple cases.
According to recent data, payouts typically cover the excess interest charged plus compensation for unfair financial loss. If you repaid a loan early, you might also claim back extra charges imposed due to higher rates. Claimants who used PCP finance often receive higher refunds than those with HP agreements. The car finance mis-selling scandal has highlighted how widespread this issue was, affecting thousands of borrowers who were unaware of discretionary commissions.
How to Claim Compensation for Mis-Sold Car Finance
- Check Your Loan Agreement – Look for any reference to commission or variable interest rates.
- Contact Your Lender – Ask if your finance deal involved a discretionary commission.
- Submit a Complaint – If you were misled, formally complain to the lender in writing.
- Escalate to the Financial Ombudsman – If the lender rejects your claim, take the case to the FOS.
- Seek Legal Advice – Some claims firms specialise in car finance compensation and can help with complex cases.
The FCA is currently investigating how lenders handled complaints before the ban. If they find systemic misconduct, large-scale refunds may be issued. Acting early ensures you don’t miss potential compensation.
Final Thoughts
If you took out car finance before 2021, reviewing your agreement could save you thousands. Many consumers unknowingly paid excessive interest due to dealer incentives. Making a claim is straightforward and could result in a substantial refund.
If your lender refuses to pay, the Financial Ombudsman is the next step. With growing pressure on lenders, more successful claims are expected. Don’t delay—checking your car finance agreement today could put money back in your pocket.
