A discretionary commission arrangement (DCA) is the hidden mechanism at the centre of the UK's largest car finance scandal. If you had dealer-arranged car finance between 2007 and 2021, understanding what a DCA is — and why it is unlawful — is key to understanding why you may be owed compensation.
The Simple Definition
A discretionary commission arrangement is a system in which a car dealer can set the interest rate on a customer's finance agreement at their own discretion — within a range defined by the lender — and receive a higher commission payment the more they inflate the rate.
In plain English: the dealer had the power to charge you more interest to earn more money for themselves, without ever telling you this was happening.
How a DCA Worked in Practice — A Worked Example
Scenario: £15,000 car finance, 4-year term
This example is illustrative, but it shows the scale of the problem. Across millions of agreements, the total overpayment industry-wide is estimated at between £13 billion and £30 billion.
Why DCAs Were a Conflict of Interest
The dealer was supposed to be acting in the customer's best interest when arranging finance. They were acting as a credit broker — introducing customers to lenders and presenting finance options. This role carried a duty of fair dealing.
However, under a DCA, the dealer had a direct financial incentive to charge the customer as much as possible. The more they inflated the rate, the higher their commission. This is the opposite of acting in the customer's interest.
To make matters worse, the dealer never told customers this was happening. Customers had no idea that the salesperson had the power to set their interest rate or that they were personally profiting from a higher rate. The FCA confirmed this constituted unfair treatment of consumers when it banned DCAs in January 2021.
What the FCA and Courts Have Said
The FCA's January 2021 ban on DCAs was the first official acknowledgement of the problem. The FCA stated that DCAs "led to customers paying more for their motor finance than they needed to" and represented a failure of consumer protection standards.
The October 2024 Court of Appeal ruling went further. In Johnson v FirstRand Bank Ltd and related cases, the court held that by operating DCAs without disclosure, lenders had breached their fiduciary duty to customers. This stronger legal standard significantly increased the potential compensation available to claimants.
For a full breakdown of the legal ruling, read: Johnson v FirstRand Supreme Court Ruling Explained.
What Types of Agreements Were Affected?
DCAs were widely used across the UK motor finance industry from at least 2007 until the ban in January 2021. Affected agreement types include:
- PCP (Personal Contract Purchase) — the most common type of new car finance
- HP (Hire Purchase) — common for used cars and traditional buyers
Not affected: PCH (lease agreements), personal loans, or direct bank finance where no dealer was involved in setting the rate.
Was Your Finance Affected by a DCA?
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Check My Eligibility FreeHow Do I Know If My Agreement Had a DCA?
DCAs were never disclosed to customers — so you will not find the phrase "discretionary commission arrangement" anywhere in your finance documents. The only way to confirm whether a DCA was in place is to request the commission disclosure from your lender, which is exactly what MotorRedress does on your behalf using your right of access under UK GDPR.
However, you do not need to wait for confirmation before registering your claim. If your agreement was dealer-arranged PCP or HP taken out between April 2007 and January 2021, a DCA was almost certainly in place. You can register now and we will confirm the details as part of the claims process.
For the full picture, see: MotorRedress Claims Guide and PCP Claim Eligibility Guide.