Background: Why Did the FCA Get Involved?
The Financial Conduct Authority (FCA) is the UK's financial regulator. Its job is to protect consumers and ensure that financial markets work fairly.
For years, consumer groups and financial journalists raised concerns about how car finance was being sold in the UK. The core issue: dealers who arranged finance agreements were receiving commission from lenders — and the amount of that commission was often directly linked to the interest rate the customer was charged.
This meant that the person helping you choose your finance deal had a direct financial incentive to put you on a more expensive one. And in the vast majority of cases, they never told you about it.
The FCA decided this warranted a formal investigation.
What the FCA Investigated
The FCA's review focused primarily on Discretionary Commission Arrangements (DCAs). Under a DCA, the lender set a base interest rate but allowed the dealer to adjust it upwards. The more the dealer increased the rate, the more commission they earned.
The investigation looked at:
- How widespread DCAs were across the motor finance industry
- How much extra consumers paid because of commission-linked interest rates
- Whether consumers were informed about commission arrangements
- The scale of the financial harm caused to UK drivers
Key Findings
The FCA's conclusions were damning. Here are the main findings:
1. DCAs Were the Industry Standard
The vast majority of car finance agreements arranged through dealerships used some form of discretionary commission. This was not a niche practice — it was how the industry operated.
2. Consumers Paid Significantly More
The FCA estimated that consumers with DCA-affected agreements paid, on average, £1,100 more in interest compared to what they would have paid at the lender's base rate. Across the millions of agreements affected, the total overpayment runs into billions of pounds.
3. Disclosure Was Inadequate
Most consumers had no idea that their dealer was earning commission, let alone that the commission was tied to their interest rate. Where commission was mentioned, it was typically buried in terms and conditions and described in vague, non-specific language.
4. The Practice Created a Clear Conflict of Interest
The FCA concluded that DCAs created an inherent conflict between the dealer's financial interest and the customer's best interest. Dealers were supposed to be helping customers find suitable finance, but their pay structure rewarded them for doing the opposite.
What Actions Has the FCA Taken?
Banning DCAs
The most significant action was banning Discretionary Commission Arrangements from 28 January 2021. Since that date, lenders can still pay commission to dealers, but the amount of commission can no longer be linked to the interest rate charged to the customer.
This means the dealer cannot inflate your rate to boost their own earnings.
Extending the Complaints Deadline
The FCA paused the normal time limit for making complaints about motor finance commission. This gave consumers additional time to bring claims while the regulator completed its review.
The extended deadline has been a critical development, as it means many people whose agreements might otherwise have fallen outside the standard time limit can still claim.
Setting Expectations for Lenders
The FCA has made clear that it expects lenders to handle complaints fairly and promptly. Lenders have been told to put adequate resources in place to process the expected volume of claims, and to offer fair redress where commission was not properly disclosed.
The Court of Appeal Ruling
In addition to the FCA's regulatory actions, a landmark Court of Appeal ruling strengthened consumers' position further. The court found that motor finance brokers (dealers) owe a fiduciary duty to their customers and must act in the customer's best interest.
This ruling means that even where a dealer technically disclosed commission in the fine print, they may still have breached their duty if they did not ensure the customer fully understood the arrangement and its impact.
The ruling broadened the scope of potential claims significantly and is one of the reasons the volume of PCP claims has increased so substantially.
What This Means for You
If you took out car finance through a dealer before January 2021, the FCA's findings are directly relevant to you. Here is what it means in practical terms:
You Were Probably Overcharged
Given how widespread DCAs were, if you had dealer-arranged finance, the probability is high that hidden commission was part of your deal.
You Have Grounds to Claim
The FCA has effectively confirmed that DCA-based commission arrangements caused consumer harm. This means your complaint to the lender is not speculative — it is backed by the regulator's own findings.
Lenders Are Expected to Pay
The FCA has told lenders to take complaints seriously and to offer fair compensation where commission was not properly disclosed. While not every claim will succeed, the regulatory environment strongly favours consumers.
Time Limits Have Been Extended
The FCA's decision to extend the complaints window means you may still be able to claim even if your agreement is several years old. But this extension will not last forever, so prompt action is recommended.
How to Make a Claim Following the FCA Review
The process for making a claim is straightforward:
- Check your eligibility — Use our free eligibility checker to find out if you have a potential claim
- Submit your information — Provide the basic details of your finance agreement
- We build your case — Our team investigates the commission arrangements and prepares your complaint
- Complaint submitted to lender — The lender is given a set period to investigate and respond
- Compensation or escalation — If the lender upholds your complaint, you receive compensation. If they reject it, we can escalate to the Financial Ombudsman Service
For a detailed step-by-step timeline, see our guide on how long a PCP claim takes.
Should You Wait for the FCA to Finish?
Some people wonder whether they should wait until the FCA's review is fully concluded before claiming. Our advice is: do not wait.
Here is why:
- Time limits still apply — The extended deadline is generous, but it will end
- Early claimants are often processed faster — Lenders are already dealing with a huge backlog, and it will only grow
- The regulatory framework supports claims now — You do not need to wait for further announcements to have a valid claim
- You are not worse off for starting early — If the FCA introduces a broader redress scheme, you can still benefit from it
Starting your claim now puts you ahead of the queue and ensures you do not miss any deadlines.
Frequently Asked Questions
Does the FCA review cover HP agreements as well as PCP? Yes. The review covers all types of motor finance where commission was involved, including PCP, HP, and conditional sale agreements.
Will the FCA make lenders pay automatically? The FCA may introduce a redress scheme that requires proactive compensation. However, making an individual complaint now ensures your claim is on record regardless of what happens next.
What if my lender has gone bust? If the lender is no longer trading, the Financial Services Compensation Scheme (FSCS) may cover your claim, subject to its rules and limits.
Take Action
The FCA's review has confirmed what millions of UK drivers suspected: hidden commission inflated car finance costs across the board. The evidence is clear, the regulator has acted, and the route to compensation is open.
Start your claim today and find out how much you could be owed. The check is free, there is no obligation, and we work on a no win, no fee basis. You can also read about our services or contact us with any questions.