The Car Finance Commission “Scandal.” Or Did You Really Think We Were Doing It for Free?

Car Finance Commission: Let me tell you something that might surprise you.

When the story broke that car dealers had been earning undisclosed commissions on finance deals — commissions that sometimes meant customers paid a higher interest rate — the nation reacted with fury.

Politicians were outraged. Journalists were outraged. The internet was outraged.

I was not outraged. I was confused.

Not because the commissions weren’t real. They were. I earned them. But because the alternative — the idea that car dealers were arranging finance agreements, doing all the paperwork, chasing lenders, processing applications and managing the whole bloody thing, entirely for free, out of the goodness of their hearts — somehow went unquestioned for decades.

Did nobody ask?

What actually happened

For years, many car finance deals in the UK were written on what’s called a Discretionary Commission Arrangement (DCA). The way it worked was this: the lender set a base interest rate, and the dealer had discretion to set the actual rate the customer paid, up to a maximum cap. The higher the rate the dealer set, the more commission they earned.

This, it turns out, was not disclosed to customers. The Financial Conduct Authority looked at this, decided it was unfair, banned DCAs in 2021, and the Supreme Court subsequently ruled that customers hadn’t given informed consent to the arrangement. A redress scheme is now in the works. Billions of pounds may be repaid.

The bit nobody’s talking about

Not everyone paid more under car finance commission arrangements (DCAs). That’s not a defence — it’s just true, and it’s being largely ignored.

Some dealers set the rate at or near the base rate, because they valued the relationship more than the extra commission. Some manufacturers ran finance deposit allowances — contributions toward your deposit, funded by the finance company — that were only possible because of the commission structure that sat behind the deal. Some dealers offered free servicing packages, extended warranties, or accessories bundles that were cross-subsidised, in part, by finance income.

The finance commission wasn’t just going into someone’s back pocket. Some of it was coming back to you in ways that were never itemised, because nobody itemised anything in those days. That’s a separate problem, but it’s part of the picture.

The paperwork argument (which nobody wants to hear)

Here’s the thing about arranging finance that the coverage tends to skip past.

It takes time.

There’s a credit application to complete. A lender to select. A proposal to submit. Conditions to manage. Documents to chase. Compliance boxes to tick. Regulatory obligations to fulfil. And someone — usually a finance manager on a basic salary that wouldn’t make your eyes water — doing all of this while also trying to sell you GAP insurance and an extended warranty before you change your mind and walk out.

The idea that this service should be provided without any compensation — for a deeper look at how dealer car finance compares to a personal loan, and that the compensation should be invisible to the customer, is where things genuinely went wrong. But the compensation itself? That was always going to exist in some form. Finance companies don’t have an army of volunteers.

The energy bill comparison (stay with me)

Cast your mind back to when it emerged that some energy customers were paying significantly more for gas and electricity than others — because they’d never switched, never negotiated, never bothered to shop around.

Savvy customers were on much cheaper tariffs. Less engaged customers were paying more. A regulator stepped in, tariff differentiation was curtailed, and the net result was that the cheap tariffs got more expensive and the expensive tariffs got slightly cheaper. Everyone converged toward the middle. The people who’d been getting a good deal quietly stopped getting a good deal.

The car finance redress situation has a similar logic.

Finance companies are now facing billions in potential compensation. The lenders who survive this will need to recoup that money somehow. The way lenders recoup money is through interest rates. And the people who pay those interest rates are — you guessed it — future car buyers.

The scheme designed to compensate people who paid too much for finance will, in all likelihood, result in everyone paying a bit more for finance going forward. This is not a conspiracy theory. It’s just how financial services work when you hit them with a very large bill.

Here’s another data point worth considering. Commission is now fully disclosed
on every car finance agreement — has been since the FCA tightened the rules.
Dealers tell you upfront what they earn. It’s there in the paperwork. And has
the number of buyers taking out finance decreased as a result of this
transparency? Not noticeably. Because buyers aren’t shocked that someone is
being paid to arrange their finance. They assumed it all along. The outrage
isn’t really about the commission. It’s about the word “hidden” — which,
fair enough, is a legitimate grievance. But it’s worth separating “this
shouldn’t have been undisclosed” from “this shouldn’t have existed.” Only one
of those arguments holds up.

My actual confession

Yes, I earned discretionary car finance commission. Yes, I sometimes set rates above the base. No, I didn’t disclose the exact mechanics of how my commission was calculated, because nobody did — it wasn’t a requirement and it wasn’t the culture.

Should it have been disclosed? Yes, probably. The FCA’s position on informed consent is hard to argue with.

Was it a scandal in the dramatic sense the headlines suggest — shadowy dealers conspiring to fleece innocent buyers? No. It was an industry operating within the rules as they existed, in a way that was commercially logical, and nobody — not the regulator, not the lenders, not the consumer groups — raised a serious flag about it for the better part of two decades.

The scandal, if there is one, is that it took this long to look at it properly. And the punchline is that the looking is going to cost future buyers more than the original problem cost most of the people it affected.

The confession

I once spent forty-five minutes completing a finance application for a customer, including three phone calls to the lender, a manual income verification, and a resubmission after the original was declined on a technicality.

The customer got his car. I earned my commission. He never asked what I got paid and I never told him.

Should I have told him? Looking back, yes.

But don’t let that get in the way of a good outrage cycle. We’ve got claims management companies to feed.

Did he think I did it for free? No he didn’t. But he’s probably filling in a
form with a claims management company as we speak.