Discretionary Commission Arrangements – what are they and are you affected?
On the 11th of January 2024, the Financial Conduct Authority (FCA) launched a review into discretionary commission arrangements within the motor finance industry.
What is a discretionary commission arrangement?
Prior to January 2021, some lenders allowed brokers (the person who arranges the loan) to adjust the interest rates they offered for car finance.
The amount of commission earned by the broker was determined by the interest rate that the agreement had been contracted at – so the higher the agreed interest rate, the higher the rate of commission was received by the broker and vice versa. This was known as a discretionary commission arrangement (DCA).
This type of commission arrangement was banned in by the FCA January 2021.
Who could this apply to?
The investigation can impact some of those who bought a motor vehicle, such as a car, van or motorcycle, between April 2007 and 28th of January 2021, using car finance with a lender who used discretionary commission arrangements. It can apply with Solutions Personal Contract Plans, Hire Purchase or Lease Purchase.
It will not apply if the finance agreement had a 0% APR or if a hire agreement, such as a Contract Hire or Finance Lease, was used.
Specialist Motor Finance has never used discretionary commission arrangements, and as such none of our customers are impacted. Our agreements state that although we do pay a commission to our brokers, there is no discretion for the broker to impact the customer rate.