What is a discretionary commission arrangement (DCA)?

A discretionary commission arrangement (DCA) was a way of paying car dealers and finance brokers that let them choose the interest rate on your car finance. The higher the rate they set, the more commission they earned. The FCA banned these arrangements in motor finance from 28 January 2021.

How a DCA worked

When you bought a car on finance, the dealer usually arranged the loan with a lender and was paid commission by that lender.

Under a DCA, the lender set a range of interest rates. The dealer or broker could pick a rate within that range. The FCA describes a DCA as an arrangement that “allowed the broker to adjust the interest rate you paid to get a higher commission”.

Two customers buying similar cars with similar credit records could pay different rates, depending on the commission the dealer chose. Many weren’t told how it worked.

Why the FCA banned them

The FCA reviewed the motor finance market and found that this kind of commission gave brokers an incentive to act against their customers’ interests. In its July 2020 announcement, it said the broker “can effectively set the interest rate”, and that the widespread use of this type of commission created that incentive.

The ban was set out in policy statement PS20/8 and took effect on 28 January 2021. It stopped new DCAs but did not, by itself, compensate anyone who had already paid a higher rate. The FCA estimated the change would save customers £165 million a year.

What the courts said

In August 2025 the Supreme Court ruled that dealers did not owe customers a fiduciary duty, and that not disclosing commission does not automatically make a finance relationship unfair. It held that a relationship can be unfair under the Consumer Credit Act when the full circumstances are taken into account. In Mr Johnson’s case, a large commission, misleading documents and an undisclosed tie between dealer and lender were enough. The court’s press summary sets out its reasoning, and our article on the Supreme Court car finance ruling explains it.

How DCAs led to compensation

After the ban, the FCA set up a compensation scheme for motor finance customers treated unfairly. Its car finance claims page says the scheme covers agreements taken out between 6 April 2007 and 1 November 2024. It covers hire purchase agreements, including PCP, but not leasing through Personal Contract Hire. An agreement may qualify if you weren’t told about any of three things:

• a DCA, which let the broker adjust your interest rate to earn more commission
• a high commission, of at least 39% of the total cost of credit and 10% of the loan
• a contractual tie, where the broker only used one lender or gave one lender first refusal

So you don’t need a DCA to be eligible for car finance compensation. Agreements after January 2021 can’t have had a DCA, but could still be in scope through a high commission or a tie. The FCA treats some agreements as fair, such as those where the commission was very small, and agreements for business purposes are excluded.

The FCA finalised the scheme on 30 March 2026. On 2 July 2026 it said the Upper Tribunal had suspended parts of it pending a hearing on 16–26 February 2027. The FCA expects payments to start in 2027 if the scheme is upheld. Check the FCA’s website for the latest position.

The FCA has said you don’t need to use a claims firm to complain. You can complain to your lender directly, for free.

How to tell if your agreement had a DCA

You usually can’t tell from your paperwork alone. The commission arrangement was between the lender and the dealer, and often wasn’t set out in your agreement.

Lenders hold the records of how commission was paid. If you complain, they look at this as part of their response. If you’re not sure who your lender was, our guide on how to find your car finance lender can help.

Why the interest on your payout is taxed

Compensation can include interest, to make up for the time you were without your money. Under the FCA’s scheme it is paid at the Bank of England base rate plus 1% a year, with a 3% minimum. That interest is treated as savings income for tax.

The lender usually deducts basic-rate income tax (22% from 6 April 2027) from the interest before paying you. It does this for everyone, without knowing your tax position. If your income and allowances mean you didn’t owe that tax, some or all of it can be repaid.

Whether you can reclaim depends on your income in the tax year you were paid:

• non-taxpayers can usually reclaim all of it
• basic-rate taxpayers can usually reclaim up to £220 on payments from 6 April 2027 (£200 before)
• higher-rate taxpayers may get some or all back on smaller payouts
• additional-rate taxpayers usually can’t reclaim anything

The repayment is usually claimed from HMRC on an R40. When you use our service, we check your position for the right tax year, prepare and submit the claim as your agent, and pay you the balance after our fees. Our how it works page explains more.

Next step

If you’ve received compensation, find the interest and tax figures on your lender’s letter and try our eligibility calculator.