Discretionary Commission Arrangement Explained UK 2026: DCA Update

If you have seen the phrases "discretionary commission arrangement" or "DCA" in news coverage of car finance, and wondered what they mean and whether your own finance agreement was affected, this guide is for you. A Discretionary Commission Arrangement was a specific type of commercial arrangement between car finance lenders and the dealers who sold finance products to customers. The FCA banned DCAs with effect from 28 January 2021 following its own research findings that the arrangement was systematically causing consumer harm. That ban was prospective, it applied to new agreements from that date, but it did not address agreements entered into before the ban, which is the heart of the current regulatory situation. The FCA's review of historic motor finance commission arrangements, launched in January 2024, and the subsequent Supreme Court judgment of August 2025, have together resulted in the FCA publishing a final industry-wide redress scheme (Policy Statement PS26/3, March 2026) covering agreements between 2007 and 2024. You do not need to use a claims management company to claim under that scheme. This guide explains exactly what a DCA is, how it worked, why it was harmful, and where matters stand as of May 2026.

What a Discretionary Commission Arrangement (DCA) is

A Discretionary Commission Arrangement is a type of commission structure under which a motor finance broker or dealer has the power to set or adjust the interest rate charged to a customer under a finance agreement, and the commission paid by the lender to the dealer is linked, directly or indirectly, to the interest rate set. The higher the rate the dealer set, the more commission the dealer earned.

To understand the mechanism, it helps to understand how dealer-arranged car finance works. When you buy a car through a dealership and arrange finance through them, the dealership is acting as a credit broker, it introduces your borrowing business to a lender. The lender then provides the loan, and the dealer receives a payment (commission) for making the introduction. Under a flat-rate or volume-based commission model, the dealer earns a fixed fee per agreement or a bonus for volume, without any link to the interest rate charged to the customer. Under a DCA, by contrast, the dealer's commercial incentive was directly tied to how much interest the customer was charged. The FCA's own research, published in its 2017 motor finance market review and subsequently in the consultation that led to PS20/8, found that this structure created a direct conflict of interest: the dealer was simultaneously meant to be helping the customer find appropriate finance and was financially incentivised to set the highest rate the lender would permit.

It is important to distinguish DCAs from two other types of commission structures. A flat-rate commission is a fixed payment per agreement, with no link to the customer's interest rate. A volume bonus is an additional payment contingent on the total number of finance agreements introduced to a particular lender over a period. Neither of those structures gave the dealer any incentive to manipulate the rate charged to an individual customer, although both still involved commission that was not always disclosed. The FCA's focus in banning DCAs was specifically on the rate-linked discretionary element, though the regulator's subsequent review and redress scheme have extended to cover other inadequately disclosed commission arrangements as well.

The history of DCAs in UK motor finance

Dealer-arranged commission structures in motor finance have existed in some form since the widespread adoption of consumer credit for vehicle purchase in the latter decades of the twentieth century. By the early 2000s, the practice of linking dealer commissions to customer interest rates had become common across the mainstream motor finance market. Estimates of market penetration vary, but by the time the FCA's 2017 market review gathered data, a substantial proportion of PCP and HP agreements arranged through dealerships involved some form of rate-linked commission.

The scale of the practice is reflected in the FCA's subsequent findings and the projected scope of the redress scheme. The FCA's PS26/3 covers approximately 12.1 million agreements entered into between 2007 and 2024, across a market that consistently financed between 80% and 90% of new car purchases through PCP or HP arrangements. Major lenders in the motor finance market during the DCA era included those operating under brands such as MotoNovo Finance (a trading name of FirstRand Bank's London branch), Black Horse (Lloyds Banking Group), and Close Brothers Motor Finance, among others.

The FCA's awareness of potential problems in the motor finance market predates the formal 2017 review. The regulator had been examining affordability concerns, transparency issues, and commission-related conflicts of interest across the consumer credit sector for several years before commissioning its dedicated motor finance study. The final findings of the 2017-2019 review, published by the FCA, found that discretionary commission models were widespread across the market and that they had directly resulted in consumers paying higher rates than they would have paid under alternative commission structures.

The FCA ban: PS20/8 and the January 2021 deadline

The FCA published Policy Statement PS20/8, titled "Motor finance discretionary commission models and consumer credit commission disclosure," in July 2020. This followed a consultation paper (CP19/28) published in October 2019, through which the FCA had proposed a ban on discretionary commission models in motor finance and changes to disclosure requirements across the consumer credit sector more broadly. The full text of PS20/8 is available at fca.org.uk/publications/policy-statements/ps20-8.

The ban took effect on 28 January 2021. From that date, lenders could no longer enter into remuneration arrangements with motor finance brokers or dealers under which the broker could set or adjust any element of the total charge for credit and received commission on that basis. Firms were given a period following the publication of PS20/8 to implement the required changes, the FCA extended the implementation period by three months compared to the original consultation timeline, citing the operational pressures that firms were facing as a result of the Covid-19 pandemic.

The FCA was explicit in PS20/8 that the ban was forward-looking. It removed the incentive structure from new agreements going forward; it did not retroactively declare all pre-2021 DCA agreements unlawful or create an automatic right to compensation for consumers who had been subject to DCA-linked rates. The FCA instead indicated that it would review its intervention in 2023 and 2024, and that supervisory work to monitor compliance with the ban would begin in September 2021. The prospective-only nature of the ban is precisely why a separate review process was required to address the question of historic harm.

The FCA estimated at the time of the ban that it would save consumers approximately £165 million per year in reduced financing costs as a result of removing dealer incentives to set higher rates.

From ban to review: the FCA's January 2024 announcement

The complaint-handling landscape shifted materially in late 2023 and early 2024. The Financial Ombudsman Service found in favour of complainants in two decisions concerning pre-ban DCA arrangements that had been rejected by lenders, signalling that the FOS considered lenders' handling of such complaints to be inadequate. The FCA anticipated that these decisions would prompt a significant increase in consumer complaints and that the resulting volume would create disorderly and inconsistent outcomes if lenders were left to handle them without regulatory coordination.

On 11 January 2024, the FCA published a statement on fca.org.uk titled "FCA to undertake work in the motor finance market." The regulator announced that it would review historic motor finance commission arrangements and sales across several firms, using its power under section 166 of the Financial Services and Markets Act 2000 to commission skilled persons reviews. Simultaneously, it introduced a pause on the deadline for lenders to respond to complaints about DCA-related motor finance agreements, with the pause initially set to last 37 weeks (approximately nine months). The pause applied to complaints received by firms on or after 17 November 2023 and on or before 25 September 2024.

The pause was subsequently extended on multiple occasions, most recently via Policy Statement PS25/18 in December 2025, which extended the deadline for both DCA and non-DCA commission complaints to align with the redress scheme timetable. The FCA's rationale for repeated extensions was to avoid requiring lenders to issue final responses to individual complaints before the regulator had determined whether an industry-wide scheme was appropriate, a determination that was made when PS26/3 was published in March 2026.

Current DCA consultation status (May 2026)

The consultation phase concluded with the FCA's publication of Policy Statement PS26/3 on 30 March 2026. The full policy statement is available at fca.org.uk/publications/policy-statements/ps26-3-motor-finance-consumer-redress-scheme. In that document, the FCA set out its final rules for two industry-wide consumer redress schemes under section 404 of the Financial Services and Markets Act 2000.

The redress scheme covers regulated motor finance agreements entered into between 6 April 2007 and 1 November 2024. An agreement is potentially within scope if commission was payable by the lender to the broker, and there was inadequate disclosure of at least one of three types of arrangement: a DCA; a high commission arrangement (commission representing at least 39% of the total cost of credit and at least 10% of the loan amount); or a contractual tie between lender and broker giving the lender exclusivity or right of first refusal (except where visible commercial links between manufacturer, dealer and lender were apparent).

As of 1 May 2026, the scheme has been challenged before the Upper Tribunal by both lenders (arguing the scheme is too broad and costly) and by a consumer group, Consumer Voice (arguing compensation levels are set too low). The FCA has stated it will defend the scheme as lawful. The legal challenge is expected to introduce some delay to the timetable, though the FCA has indicated it will provide updated guidance. Consumers with eligible agreements should not need to take any action at this stage beyond ensuring their lender has correct contact details for them.

For further context on the Supreme Court judgment that preceded the scheme, see the companion article at Car Finance Supreme Court Ruling Explained and the full eligibility and claims process at Mis-Sold Car Finance UK.

How DCAs interacted with PCP and HP agreements specifically

The two most common types of regulated motor finance agreement in the UK are Personal Contract Purchase (PCP) and Hire Purchase (HP). Understanding how DCA commission structures interacted with each helps to clarify the potential scope of any consumer's entitlement.

Under a PCP agreement, the customer pays a deposit, makes a series of monthly payments, and at the end of the agreement has the option to pay a final "balloon payment" (the Guaranteed Minimum Future Value, or GMFV) to own the vehicle outright, return the vehicle, or use any equity as a deposit on a new PCP deal. The monthly payments under a PCP are calculated on the interest charged on the difference between the vehicle price and the GMFV, meaning that the customer does not pay interest on the full vehicle value. Under a DCA structure, if the dealer raised the APR on the PCP agreement, the monthly payments increased in proportion to the amount of principal on which interest was charged, not the full vehicle price. This could mean that even a relatively small increase in APR (for example, two percentage points) translated into several hundred pounds of additional interest over the term of a three-year PCP.

Under a Hire Purchase agreement, the customer pays a deposit and monthly instalments covering the full vehicle price plus interest, taking ownership automatically at the end of the term. Because the customer is paying interest on the full outstanding balance throughout the agreement, an increase in APR driven by a DCA had a direct and compounding effect on total interest paid over the life of the agreement. The FCA's analysis suggested that DCA-linked rate adjustments resulted in some customers paying substantially more than they would have under a flat-rate commission structure.

Lease agreements, also known as Personal Contract Hire (PCH), are structured differently. Under PCH, the customer never acquires any ownership interest in the vehicle and the contract is treated as a rental. The FCA's review and the redress scheme do not cover leasing agreements. The FCA confirmed in Policy Statement PS25/18 that firms must begin sending final responses to complaints about leasing agreements from 5 December 2025, as those agreements are excluded from the redress scheme.

What "discretionary" actually meant in practice

The word "discretionary" in the name of these arrangements referred to the dealer's freedom to set or adjust the interest rate within a range set by the lender. Lenders would typically provide dealers with a rate sheet setting minimum and maximum APRs for a given agreement size and term. The dealer could then set the customer's rate anywhere within that band.

The following is a worked example using entirely illustrative, notional figures. No real lender names are used. The purpose is to show the mechanism only, not to suggest any particular level of harm in any real case.

Suppose Lender X offers a dealer a range of APRs between 6% and 14% on a five-year HP agreement for a vehicle purchase of £15,000. Under Lender X's DCA structure, the dealer earns a flat commission of £0 if it sets the minimum rate of 6%, and a commission calculated as a percentage of the finance margin if it sets a higher rate, with the commission increasing proportionally as the rate increases toward the maximum of 14%. In this illustrative scenario, the total interest paid by the customer at 6% APR over five years might be approximately £2,400, while at 14% APR the total interest paid might be approximately £5,700. The dealer's interest in setting a higher rate is clear: the difference in commission between the minimum and maximum rate setting could represent several hundred pounds per transaction. The customer, unaware that the dealer had any discretion over the rate or that the dealer's earnings were linked to the rate chosen, had no opportunity to negotiate or to seek a lower rate from a competing lender.

All figures in the above example are purely illustrative. Actual commission structures, interest rate ranges, and loan sizes varied across lenders and over time. The FCA's published analysis in CP25/27 and PS26/3 contains detailed worked examples using methodology drawn from the regulator's own data collection across the market.

Sources and verification

• FCA Policy Statement PS20/8: Motor finance discretionary commission models and consumer credit commission disclosure (July 2020), fca.org.uk
• FCA: Motor finance market review final findings (March 2019), fca.org.uk
• FCA: Statement on FCA to undertake work in the motor finance market (January 2024), fca.org.uk
• FCA Policy Statement PS26/3: Motor Finance Consumer Redress Scheme (30 March 2026), fca.org.uk
• FCA Consultation Paper CP25/27: Motor Finance Consumer Redress Scheme (7 October 2025), fca.org.uk
• FCA Policy Statement PS25/18: Changes to handling rules for motor finance complaints (December 2025), fca.org.uk
• Consumer Credit Act 1974, legislation.gov.uk
• Hopcraft v Close Brothers; Johnson v FirstRand Bank; Wrench v FirstRand Bank [2025] UKSC 33, supremecourt.uk

Frequently asked questions

What is a discretionary commission arrangement (DCA)?

A Discretionary Commission Arrangement is a type of commission structure in which a motor finance dealer or broker had the power to set or adjust the interest rate charged to a customer, and received commission from the lender that was linked to the rate set. The higher the rate the dealer set, the greater the commission they earned. This created a direct conflict of interest between the dealer's role in helping customers find suitable finance and the dealer's own commercial incentive to charge higher rates.

When were DCAs banned in the UK?

The FCA banned discretionary commission models in the motor finance market with effect from 28 January 2021. The ban was introduced via Policy Statement PS20/8, published in July 2020, following a consultation paper (CP19/28) from October 2019. The ban applied to new agreements from 28 January 2021 and was not retroactive.

How do I know if my car finance agreement had a DCA?

Most consumers will not be able to determine this from their paperwork alone, because the commission structure between the lender and dealer was typically not disclosed to the customer. The FCA's redress scheme (PS26/3) is designed to address this: lenders are required to review their own records, identify agreements within scope, and contact eligible customers directly. You do not need to establish whether your agreement contained a DCA before the lender contacts you. If your agreement falls between 6 April 2007 and 1 November 2024 and commission was paid to the dealer by the lender, your agreement is potentially within the scheme's scope subject to the disclosure criteria.

Does my agreement need to have had a DCA for me to claim?

No. The FCA's redress scheme covers three types of inadequately disclosed commission arrangement, not just DCAs. The other two categories are high commission arrangements (commission of at least 39% of the total cost of credit and at least 10% of the loan amount) and contractual ties between lender and broker that gave the lender exclusivity or right of first refusal (subject to certain exceptions). Agreements containing any of these three arrangements, where the relevant arrangement was not adequately disclosed to the consumer, may be within scope for redress.

What is the FCA's current position on DCAs in 2026?

The FCA's current position as of May 2026 is set out in Policy Statement PS26/3, published 30 March 2026. The FCA has confirmed an industry-wide redress scheme covering approximately 12.1 million motor finance agreements entered into between 2007 and 2024, where there was inadequate disclosure of commission. The estimated total consumer redress is approximately £7.5 billion. As of 1 May 2026 the scheme is subject to legal challenge before the Upper Tribunal from both lenders and a consumer group. The FCA has stated it will defend the scheme as lawful and is the quickest route to fair compensation for affected consumers.

How does a DCA differ from a "secret commission"?

A DCA is a specific, defined commission structure involving rate-linked payments that the FCA has formally identified and banned. A "secret commission" is a broader common-law concept covering any commission payment made to an agent (such as a dealer) that was not adequately disclosed to the principal (the customer). The Court of Appeal's October 2024 judgment initially brought both concepts into play as routes to legal recovery. The Supreme Court's August 2025 ruling [2025] UKSC 33 rejected the bribery and fiduciary duty routes to recovery but preserved the "unfair relationship" route under section 140A of the Consumer Credit Act 1974. The FCA's redress scheme was designed to address inadequately disclosed commission arrangements of all three types defined in PS26/3, not just DCAs.