Auto Finance Discretionary Commission Crisis

FCA commission review: How far can it go?


The motor finance industry is bracing itself for a deluge of consumer complaints about mis-selling following the announcement in early January of a Financial Conduct Authority (FCA) review of historical motor finance commission arrangements and sales across several firms.

The Daily Telegraph is one of several media outlets alerting readers of the steps to take to make a complaint, while Martin Lewis, founder of, has advised anyone who thinks they have been mis-sold “getting in a complaint now as a marker”.

Lewis estimates the total sum of payouts could be as big as the earlier £40bn PPI mis-selling scandal.

The floodgates opened after two rulings from the Financial Ombudsman Service (FOS) following complaints from consumers about discretionary commission arrangements between lenders and brokers and dealers, which the Financial Conduct Authority (FCA) banned in 2021. Prior to the intervention by the regulator complaints were low, and customer satisfaction was high.

Black Horse Finance was ordered to pay the complainant the difference between the payments made under a car finance agreement at the flat interest rate of 5.5%, and the payments that would have been due at the lowest (zero discretionary commission paying) flat interest rate of 2.49%. The lender must also pay 8% simple interest on each overpayment calculated from the date of the payment to the date of settlement.

Clydesdale Financial Services Limited (trading as Barclays Partner Finance) was required to pay the difference between made at 4.67% and those that would have been made at 2.68%, plus the 8% on each overpayment.

FOS reports over 10,000 consumers have already made similar claims, while the FCA’s original investigation into Difference in Charges (DiC) payments estimated that 560,000 customers of the firms in its sample, representing 60% of the market, could be paying in £300m more in total in interest costs compared to flat fee models.

Sheldon Mills, the FCA’s executive director of consumers and competition, has said that 75% of the loan agreements between 2007 and 2021 would have had some form of discretionary commission model, although not all consumers would be entitled to compensation.

What next?

The FCA will devise their own approach to settling cases, but paying a compensation bill on good finance deals is only part of the challenge. Lloyds Bank, Black Horse’s parent, saw a sharp dip in its share price following the announcement, and some lenders will be asking themselves whether they should remain in the market at all – especially where retrospective compensation claims are a live issue.

The FCA has already shown it will use its Consumer Duty powers to force through change, as wealth management specialist St James Place has found. Its share price plummeted 21% and net inflows were severely dented following the regulator’s investigation into its fee structure, and the company now has a new CEO and business model.

Nor is DiC the only motor finance issue the FCA has in its sights. In September last year the regulator wrote to insurers cautioning it had evidence that some Guaranteed Asset Protection (GAP) products may be failing to provide fair value to customers

The regulator said its data indicated that only 6% of the amount paid for GAP premiums is paid out in claims, with some firms paying out up to 70% of the value in commission to parties in the distribution chain, such as motor dealerships.

The FCA gave firms providing GAP insurance products a three-month ultimatum to take action to prove customers are getting a fair deal, or it will intervene – and that time is almost up.

“We are seeing a seismic shift in how the motor finance market operates. It’s no longer a question solely of keeping our customers happy. It seems customers’ buying decisions are no match for the regulators views about what constitutes a good deal. All the signs are that the regulator’s judgement on this is flawed. They are in danger of compensating customers who suffered no harm, of damaging a well-functioning market, and harming the long term interests of the consumers they are there to protect.” observed Edward Peck, CEO of Asset Finance Connect

Asset Finance Connect will be reporting on this topic more fully in the coming days and weeks. Please email with your comments on this developing story.