What is a discretionary commission arrangement (DCA) in car finance?

• A discretionary commission arrangement (DCA) let a car dealer or broker influence the interest rate you were charged on your car finance deal, allowing them to earn more commission.

• DCAs were banned in January 2021, but older agreements are now being assessed as part of the FCA's motor finance redress scheme.

• You don't need to know whether your agreement had a DCA before making a complaint. You can ask your lender yourself for free, or Claim-Smart can look into your agreement for you.

If you've seen "DCA" mentioned in a letter from your lender or in the news recently, it refers to the way some car dealers and brokers used to earn commission for arranging finance.

The basic idea is that the dealer had a say in the interest rate you were charged. The higher the interest rate, the more commission they could potentially earn.

What isn't always so easy is working out whether this happened on your old PCP agreement, especially if you took the finance out years ago and haven't kept the paperwork. 

If you're trying to find out whether your agreement could be affected, get in touch with Claim-Smart and we can help you look into it.

What is a discretionary commission arrangement (DCA)?

A DCA was a way of paying commission that could give the dealer arranging your car finance an incentive to put you on a higher interest rate.

The lender might give the dealer a range of rates it could offer. Under some DCA models, choosing a higher rate for the customer meant more commission for the dealer.

You could therefore walk away thinking you'd been offered the standard rate for your finance without knowing that the dealer had some control over it, or that the rate could affect how much they were paid.

Dealers earning commission wasn't unusual. The question is what you were told about it and whether the way that commission worked gave the dealer an incentive to put you on a more expensive deal.

How did a DCA affect what you paid for your car finance?

A DCA could make your finance more expensive because the dealer had some freedom over the interest rate you were offered.

Say a lender gave a dealer a range of rates it could offer. If the dealer earned more commission by putting you on a higher rate, there was an obvious incentive to do exactly that.

You could end up paying more interest without knowing the person arranging the deal could earn more from it.

That's why DCAs became such an issue for the FCA. It wasn't just a question of commission being paid behind the scenes. It was the link between the dealer's commission and the price the customer paid.

When were DCAs banned, and why does that date matter?

The FCA banned discretionary commission arrangements in motor finance from 28 January 2021.

From that point, dealers and brokers could no longer operate this type of commission model. So if you're specifically trying to find out whether you had a DCA, you're looking at finance arranged before the ban.

You may have seen later dates mentioned in relation to car finance claims, though. That's because the FCA's redress scheme isn't limited to DCAs.

It covers certain motor finance agreements entered into between 6 April 2007 and 1 November 2024, including other types of commission arrangement we'll come to below.

If you're unsure where your agreement falls, we've explained the dates in our guide to what year you needed to buy a car to be eligible for a mis-sold car finance claim.

Does having had a DCA automatically mean I'm owed compensation?

No, having a DCA on your old car finance agreement doesn't automatically mean you're owed compensation.

It's an important thing to note because there's been so much talk about car finance refunds that it can sometimes sound as though finding a DCA means a payout follows. That's not how the FCA's scheme works.

The circumstances of the agreement still matter, including what you were told about the commission and how the arrangement worked.

So finding a DCA can be relevant, but it's one part of the picture rather than an automatic yes or no.

Our guide to how to know if you were mis-sold car finance goes into the other things worth checking.

If you've found out your agreement had a DCA but aren't sure what that means for you, Claim-Smart can check the details and help you understand whether it may be worth pursuing a complaint. You can also contact your lender and do this yourself for free.

What other commission arrangements might affect my claim?

A DCA isn't the only commission arrangement included in the FCA's motor finance redress scheme.

The FCA's scheme also covers some high commission arrangements, where the commission was at least 39% of the total cost of credit and at least 10% of the amount borrowed.

It also includes some tied arrangements. In short, these are cases where a broker was tied to one lender or had to give one lender the first opportunity to provide the finance.

There are exceptions within the rules, so the type of commission is only one part of deciding whether an agreement qualifies for compensation.

We've explained more about what could affect the amount paid in our guide to how PCP claims are calculated.

How can I find out if my agreement had a DCA?

You can ask the lender that provided your car finance whether your agreement involved a DCA.

And you don't need to already know the answer before making a complaint. Most customers wouldn't have known how the dealer's commission was calculated at the time they bought the car, which is exactly why people are asking lenders about old agreements now.

If you still have your PCP paperwork, look for the lender's name and agreement number.

If you don't, don't assume you've hit a dead end. Old emails, bank statements or your credit report may help you work out who provided the finance and where to complain.

Our guide to where to find the details to start a PCP car finance claim covers the places worth checking if the agreement itself is long gone.

Once you've worked out who the lender is, you can contact them directly and complain for free.

If you've got an old PCP agreement but no paperwork and can't remember who the lender was, Claim-Smart can help you look into it. We can also manage the complaint and lender correspondence if you'd rather not deal with that yourself.

So, what is a DCA and what should you do next?

A DCA was a way of paying car finance commission that could give a dealer an incentive to charge a higher interest rate because doing so could increase their own commission.

If you took out PCP finance before 28 January 2021, it's possible your agreement involved one. But having a DCA doesn't automatically mean you are owed compensation, and a lender telling you there was no DCA doesn't necessarily rule out other commission issues either.

You don't need to work all of this out before making a complaint.

If you know who your lender was, you can contact them yourself and ask them to check your agreement for free. If the paperwork has gone missing or you'd rather someone else deal with the process, that's where Claim-Smart can help.

Think an old PCP agreement could be affected by a DCA or another commission arrangement? Get in touch with Claim-Smart to find out more and we can help you look into your agreement.

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