There are now two different types of car finance commission complaints, “discretionary commission” and “undisclosed commission”.
In January 2024, the FCA allowed car finance firms to “pause” their handling of discretionary commission complaints. Then in October, a major appeal court case covered a completely different reason for asking for a refund of car commission – it was not fully explained to you.
So in December 2024, the FCA extended the scope of its pause on complaint handling to cover this second type of complaint, which may apply to more customers.
The 2 types of commission claim
“Discretionary commission”
It was common for car finance lenders to allow a car dealer to set the interest rate on a car finance agreement within a range – they had “discretion” over what the rate was. The dealer would get more commission from the car finance lender the higher the interest rate was. So they had an incentive to set your rate as high as they thought you might accept.
In January 2024, the Financial Ombudsman (FOS) awarded refunds in some key car finance cases. The FOS decisions were that discretionary commission was unfair and the customer should get a refund of the additional interest paid over the lower limit. This FOS announcement has links to the decisions.
It is thought that about 40% of car finance may have involved discretionary commission, so the number of potential complaints is very large.
The FCA, therefore, introduced a pause in January, allowing car finance lenders longer to reply to complaints while the FCA reviewed the market and possible refund arrangements.
As the FCA had banned this form of commission at the end of January 2021, these claims all relate to finance that began before that date.
The FCA had intended to set out the next steps in these claims in 2024, but the timetable was extended to May 2025, with firms having to provide a final response to complaints where there was by December 2025. Because lenders have longer to reply to complaints, customers also have much longer before they need to send them to the Ombudsman.
“Undisclosed commission”
An Appeal Court case in October 2024 awarded refunds of “undisclosed commission” in three car finance cases. In one of these cases, the car paperwork did not mention any commission. In the other two, there was a statement in the paperwork that commission may be paid, but it was not explained how much. The judgment decided that this was not clear enough for the customers and ordered that the commission should be refunded in each case.
This decision was based on English common law, not the FCA’s rules. Refunding undisclosed commissions potentially covers almost all car sales that involve a commission payment from the finance company to the dealer/broker, including car leasing and finance taken after January 2021.
The FCA has now introduced a pause for this new type of commission complaint, with the same timetable as the discretionary commission – car finance providers do not have to provide final responses to undisclosed commission complaints until December 2025.
This pause applies to a much wider range of car finance than the original DCA, including leasing and recent car finance.
Legal challenges are underway about both types of claim
There was a legal challenge called a Judicial Review to one of the Ombudsman’s January 2024 discretionary commission decisions. If the court had ruled the decision was incorrect, the discretionary commission claims would have had to be reconsidered.
This has now been heard, and the judgment in December did NOT overturn the FOS decision. This is good news for customers with discretionary commission complaints. But that judgement is now going to be appealed.
The Appeal Court’s undisclosed commission judgment is being appealed to the Supreme Court. A hearing date is listed for the beginning of April. The Appeal Court’s decisions may be upheld, overturned, or restricted in some way. There are many possibilities, and it isn’t possible to guess what may happen.
Until the FOS Judicial Review appeal is known, the Supreme Court decision on undisclosed commission is known, and the FCA has produced its review of discretionary commission, no one can be sure whether they are likely to win either type of claim or what the potential refund is likely to be for either type.
Making a claim
MSE’s two claims generator tools
MSE now has two tools that generate complaints for two different sorts of claims. These tools are free to use. They both generate an email for you to send and provide the email address for your finance lender.
The first one is for discretionary commission (DCA). No one was told when they bought a car whether there was any discretionary commission paid, it isn’t in your car finance paperwork anywhere. The only way to find out if it was paid in your case is to ask. If discretionary commission was paid, the email starts a complaint about this.
The second one is for undisclosed commission. It asks if any commission was paid. If it was but it was not set out in full, the email starts a complaint about undisclosed commission.
Which claim should you make?
Sometimes you don’t have a choice. In the following situations, make a complaint about undisclosed commissions:
- the finance stated after January 2021. At that point discretionary commission stopped so there can’t have been any;
- the car was leased (also known as Personal Contract Hire). Here discretionary commission doesn’t apply;
- your lender has stated they never used discretionary commission – there is a list of these lenders in the MSE discretionary commission tool. If your lender is on this list, there is no point in asking them about it so ask about undisclosed commission instead;
- you have already asked your lender about discretionary commission and have been told it was not charged on your car finance.
If none of those apply to you, you could potentially be able to make both sorts of claim. But obviously you can’t get the same commission refunded twice!
So MSE suggests you first ask whether there was any discretionary commission, using that tool, and later ask about the undisclosed commission if you are told there is no discretionary commission. This seems the simplest approach.
This is not going to be fast but start now
The FCA pauses and the court cases coming up mean these claims are not going to be fast. It is very unlikely there will be any refunds before 2026.
But kick off your claim now, so you know more about what commission was paid on your car finance. This will leave you in the best place going forward.
Don’t use a claims firm
You don’t need a claims company to do this or a firm of solicitors. It is simple and free to do yourself with the MSE tools. A claims company will take a very large amount of any refund that you get.
It will not be quicker to do with a claims company or solicitors. They don’t have lists of who has valid claims, they will ask the lenders the same question that you can, and have to wait for a response like you do. Nor will you get more compensation that way.
The pause on FCA complaint handling sounds long… but in practice using claims firms will not be quick either.
IMPORTANT could you also make an affordability complaint?
These undisclosed commission complaints are not the same as affordability complaints.
But if your car finance was very hard to pay from the beginning, it may have been “unaffordable”. You may have had to get behind with other debts or borrowed more in order to be able to pay the car finance.
Here you may be able to win an affordability complaint if your finance ended within the last 6 years. See Were you sold a car on unaffordable car finance? for details and how to make an affordability complaint.
If you win an affordability complaint you will get all the interest refunded. This is likely to be much more than you would get from a commission complaint.
This article was rewritten in January 2025
More articles:
Car finance affordability complaints
In your overdraft the whole month?
How to ask for refunds for all types of debt