Glossary · UK
What is Motor Finance Commission (Discretionary Commission Arrangements)?
Commission historically paid by lenders to car dealers that was linked to the interest rate charged to the customer, giving the dealer an incentive to set a higher rate — now banned, and the subject of an FCA-led redress scheme for affected borrowers.
Full Definition
Motor finance commission refers to payments made by a lender to the car dealer arranging a customer's finance agreement (commonly hire purchase or PCP) for introducing the business. Until banned by the FCA from January 2021, many of these arrangements were structured as discretionary commission arrangements (DCAs), under which the dealer could set, or negotiate within a range, the interest rate charged to the customer, and the commission the dealer received increased the higher the rate they chose -- creating a direct financial incentive for the dealer to charge the customer more than the lowest rate they could otherwise have qualified for, without the customer necessarily being told that the dealer's own commission depended on the rate agreed. Following a wave of consumer complaints and litigation, courts and the Financial Conduct Authority examined whether these arrangements, and the lack of clear disclosure to customers about the commission and its link to the interest rate, were unfair under the Consumer Credit Act 1974 and wider consumer protection law; the FCA has consulted on and is expected to confirm an industry-wide redress scheme requiring lenders to proactively identify affected agreements and compensate eligible customers, rather than requiring every customer to bring an individual complaint or court claim. Customers who had motor finance arranged through a dealer before the January 2021 ban, particularly where they were not told about the commission structure or its link to their interest rate, may be entitled to redress without needing to take any action once the scheme is finalised, though many have also raised complaints directly with lenders or via the Financial Ombudsman Service in the meantime; the eventual scale of compensation across the industry has been estimated in the billions of pounds.