A Discretionary Commission Arrangement was a controversial car finance practice where dealers had control over setting the interest rate and could earn higher commission for offering customers higher rates. This meant that instead of finding the best deal for you, a dealer might have an incentive to push you towards a loan with a more expensive interest rate.
For example, imagine you’re buying a £15,000 car on finance. A dealer might offer you a choice between two loans: one at 6% APR and another at 8% APR. The arrangement allowed the dealer to earn more commission from the higher rate loan, even though it would cost you more in interest over time.
This practice was harmful for consumers because it could lead to motorists paying far more than necessary for their car finance. It also meant that dealers might not be giving impartial advice on which deal is best for your budget and needs.
In response to these concerns, the Financial Conduct Authority (FCA) introduced stricter rules banning Discretionary Commission Arrangements in 2017 under the Consumer Credit Act. This ensured that dealers had no financial incentive to offer you a loan with an unnecessarily high interest rate.
When looking for car finance, it’s crucial to shop around and compare deals from different lenders directly rather than relying solely on what your dealer offers. Always check the APR (Annual Percentage Rate) of any finance deal to ensure you’re getting the best possible terms for your budget.
How This Relates to the FCA Redress Scheme
The FCA motor finance redress scheme covers 12.1 million agreements with an average compensation of £829 per agreement. The total cost to firms is £9.1 billion. If you had PCP or HP finance between 6 April 2007 and 1 November 2024, you may be eligible. The final deadline to complain is 31 August 2027. You do not need a claims management company.