The FCA and the DCAs: How We Got Here, What We Know and What Happens Next

Late on Friday afternoon, after the markets had closed for the weekend, the Supreme Court shared their judgement on three appeal cases involving Discretionary Commission Arrangements. These were cases where consumers alleged that car dealers who were motivated by commission payments linked to the total amount they paid burdened them with higher interest rates for their car finance, and failed to disclose it.

Before we look at the outcome of that decision, and what it means for the complaints landscape going forward, let’s step back for a moment – how did we get here?

The Discretionary Commission Arrangement Timeline

Our timeline starts all the way back in 2017, with the FCA investigating the Motor Finance sector, examining how well car finance was functioning and if customers were being treated fairly. This raised the issue of Discretionary Commission Arrangements, in which dealers were incentivised to charge consumers higher rates of interest. That spawned a specific investigation of DCAs in 2019, with a consultation opened in October of that year. With the information they had gathered, they announced in July of 2020 that DCAs were to be bannedfrom January 2021.

But all of that is really just the background to the situation that we’re now in. Jump ahead to January 2024 – after a period of time where an estimated 99% of complaints about historical DCAs had been rejected by firms, the Financial Ombudsman Service found in favour of complainants in two cases. This prompted the FCA to act, pausing all current complaints about motor finance while they investigated if customers should in fact be entitled to compensation in cases where their car loan had been subject to a DCA before the ban.

That investigation is complicated further by the Court of Appeal judgement in October 2024, which ruled that it had been unlawful for brokers to receive commission from lenders providing car finance without the customer being informed and giving their consent.

The lenders involved then took these three cases to the Supreme Court, which heard the cases in April of 2025 and delivered their judgement last week.

The Supreme Court Decision

As you’ve probably seen in news coverage, that judgement was not quite the clear cut end to the story some had expected. The court found in favour of the lenders in two cases, but sided with the consumer in the third. They declared that while the practice of commission had not been inherently unlawful, in that third case specifically the commission had been so high (55%) that it was a “powerful indication” that there was an unfair relationship.

The outcome consumers had been hoping for was all three cases finding in favour of the complainants, opening the floodgates for a widespread remediation programme in the mould of PPI where anyone who had been subject to a DCA could potentially claim compensation. There’s been a big push from Claims Management Companies to raise awareness around this issue and encourage consumers to complain, so we know there were a lot of these complaints already in motion long before the judgement arrived.

But we also did not see the outcome some people in industry had been hoping for – if all three cases had gone in favour of the lenders, that would send a strong message that they were not likely to need to compensate a large number of their past customers.

Instead we’ve arrived a situation where the question for lenders facing DCA complaints will be – was this specific commission arrangement unfair?

The FCA Response

The FCA moved quickly, publishing an announcement on Sundaythat they would consult on a proposed compensation scheme, with the consultation set to open in October.

The regulator will set out rules on how “lenders should consistently, efficiently and fairly decide whether someone is owed compensation and how much”. Factors that their statement identified as being key to assessing if an individual case is unfair included:

• the size of the commission relative to the charge for credit
• the nature of the commission, for example, whether it is discretionary
• the characteristics of the consumer
• compliance with regulatory rules
• the extent and manner of disclosure

With those guiding principles, they will now look to create a redress scheme, clearly guiding firms on how to make those assessments and how much compensation needs to be made if the yet-to-be-defined criteria are met.

As they discussed back in June when they first put forward the notion that a compensation scheme might be necessary, the FCA has to balance a number of competing factors in creating the rules and guidelines. The considerations they have identified are:

• comprehensiveness
• fairness
• certainty
• simplicity and cost effectiveness
• timeliness
• transparency
• market integrity

Some of these are of course going to be competing and conflicting, and the consultation will help them arrive at the right balance between all aspects.

Reactions So Far

With the ruling out and the consultation a few months away, we’re seeing a range of responses in the industry. Whilst most accept that there were some unfair arrangements, there are concerns about the cost burden on firms for compensation – especially if the FCA requires repayment of the full cost of commission, with some hoping that redress is instead calculated in terms of a difference between how much the customer paid and the standard market rate at the time.

“At the time” is a key phrase there because one fear that has been flagged is that this work is going to require a lot of historical data – and if the scheme allows for complaints from before the FCA became responsible for consumer credit in 2014, firms may find themselves looking for data that simply was not recorded as it was not yet required.

How Can You Prepare?

That means we’re almost certainly looking at a significant amount of work for motor finance firms in the near future, whatever version of a compensation scheme there ends up being. We work with a number of consultants who have subject matter expertise on both historical complaints and redress schemes, as well as our bench of complaint handlers that allows us to supply full teams to our clients for their projects. For organisations looking to automate the process, we can supply experienced administrators who have complaints knowledge and can help ensure cases are fully documented and being handled in a compliant manner.

For a confidential discussion about your complaints resource requirements and how Kind Consultancy might be able to help, contact us on 0121 643 2100 or via our website and follow Kind Consultancy on LinkedIn to keep up to date with our latest news, industry analysis and job postings.