What is a Discretionary Commission Model in car finance?

Discretionary Commission Models (DCM) allowed car dealers to increase the interest rate on a finance agreement (such as PCP or HP) to earn a higher commission from the lender. This practice created a conflict of interest and was banned by the FCA in January 2021.

How does FSMA 2000 apply to car finance commission claims?

The Financial Services and Markets Act 2000 (FSMA 2000) provides the framework for UK financial regulation. Section 138D allows consumers to claim damages if a firm’s breach of FCA rules, such as failing to disclose commission or fair treatment, led to financial loss.

Who is eligible to claim for mis-sold car finance commission in 2026?

You may be eligible for a refund if you took out car finance (PCP or HP) before 28 January 2021, and your dealer used a discretionary commission model to set your interest rate. This applies to personal vehicles and some small business agreements.

When was car finance discretionary commission banned in the UK?

The Financial Conduct Authority (FCA) banned the use of discretionary commission models on 28 January 2021. Any finance agreement signed after this date should not be affected by these specific commission structures.

How do I check if my car finance was impacted by secret commission?

To start a claim, you should contact the lender listed on your finance agreement (found on your V5C logbook or bank statements). You will need details of the finance deal, though the FCA has extended complaint deadlines to allow for thorough investigation into historical 2007–2021 data.

How much can I claim back for car finance commission?

While the final amount depends on the interest rate hike and the loan value, many UK claimants are seeking refunds for the difference between the 'best' rate and the rate they were actually charged. In some cases, this can amount to thousands of pounds plus interest.

FSMA 2000: The 2026 Guide to Claiming Discretionary Car Finance Commission

In the landscape of UK automotive finance, few legislative frameworks carry as much weight today as the Financial Services and Markets Act 2000 (FSMA 2000). As we move through 2026, the ripple effects of the Financial Conduct Authority’s (FCA) investigation into historical car finance commission structures have reached a boiling point.

For years, many car buyers were unaware that the interest rate they were quoted by a dealership was not necessarily the "best" rate available, but rather a rate influenced by personal incentives for the broker or dealer. This guide explores the legal mechanism behind reclaiming funds lost to Discretionary Commission Models (DCM) and what your rights look like under current UK law.

Understanding the Legal Core: FSMA 2000

The Financial Services and Markets Act 2000 is the cornerstone of financial regulation in the UK. It grants the FCA the power to set rules that firms must follow when providing financial services, including car finance. Specifically, Section 138D of FSMA 2000 allows private individuals to sue for damages if they suffer a loss because a firm breached a specific FCA rule.

The crux of the current "Car Finance Commission" scandal lies in the breach of "fair treatment" and "conflict of interest" rules. Between 2007 and 2021, many lenders operated under Discretionary Commission Models. This allowed dealers to increase the interest rate on a customer's loan to earn a higher commission—a practice that was banned on 28 January 2021.

The 2026 Context

Following the massive pause on complaint deadlines initiated in 2024/2025, the FCA has provided a clear roadmap for 2026. Claims are now being processed based on whether there was a "fiduciary duty" or a failure to disclose the commission structure, following landmark rulings in the Court of Appeal.

Buyer Rights: Your Entitlement to Redress

As a consumer, your rights are protected by a combination of FSMA 2000 and the Consumer Credit Act 1974 (CCA 1974). If you purchased a vehicle on finance (PCP or Hire Purchase) prior to January 2021, you may have the following rights:

1. The Right to Transparency

Under the FCA’s "Principle 6" (Treating Customers Fairly), customers had a right to know how much the dealer was being paid. If the commission influenced the interest rate you paid and this wasn't disclosed, your right to an informed choice was compromised.

2. Section 140A of the Consumer Credit Act 1974

This section deals with "unfair relationships." In 2026, courts are increasingly using S.140A to determine that if a lender paid a secret or partially secret commission to a broker/dealer, the relationship between the lender and the consumer may be deemed "unfair." This allows a judge to order the lender to repay the commission or even the interest charged.

3. The Right to Alternative Dispute Resolution (ADR)

Under the rules established via FSMA 2000, you have the right to take your complaint to the Financial Ombudsman Service (FOS). This is a free service for consumers that provides a legally binding decision on lenders without the need for high-cost court proceedings.

4. Refund of Overpaid Interest

If your claim is successful, you aren't just looking for a "token" refund. You are entitled to the difference between the interest rate you were given and the lower rate you should have received had the commission not been added, plus statutory interest (usually 8% per year).

Dealer and Trader Obligations: The Legal Burden

Under FSMA 2000 and the Consumer Protection from Unfair Trading Regulations 2008 (CPRs 2008), dealers and finance brokers carry strict legal obligations.

1. Mandatory Disclosure

Dealers must clearly disclose the nature of their commission. In 2026, the standard for "clear and prominent" disclosure has been heightened. A dealer cannot simply hide a commission clause in the "small print" of a 40-page contract.

2. Management of Conflicts of Interest

Under FSMA 2000, firms must take reasonable steps to ensure that conflicts of interest do not result in "detriment to customers." By using a Discretionary Commission Model, many dealers prioritised their own profit over the customer's financial health, which is a direct breach of these obligations.

3. Record Keeping and Complaint Handling

Lenders and dealers are legally required to maintain records of the finance agreements they sold. Under current FCA mandates, firms must acknowledge your complaint within a set timeframe and provide a final response or an explanation for the delay. They cannot simply ignore correspondence regarding historical DCM claims.

4. Obligations under CPRs 2008

The Consumer Protection from Unfair Trading Regulations 2008 prohibit "misleading omissions." If a dealer failed to tell you that they were choosing a higher interest rate specifically to increase their payout, they have committed a misleading omission, which can provide a basis for a claim for damages.

How to Start a Claim in 2026

If you believe you were affected by a Discretionary Commission Model, follow these steps:

Check your Date: The focus is primarily on agreements signed between April 2007 and 28 January 2021.
Identify the Lender: Your claim is typically against the finance provider (e.g., Black Horse, MotoNovo, VWFS), not just the dealership where you bought the car.
Submit a "Subject Access Request" (SAR): If you no longer have your paperwork, you can use the Data Protection Act 2018 to request your file from the lender.
Formal Complaint: Write to the lender citing their breach of FSMA 2000 and the existence of an unfair relationship under S.140A of the CCA 1974.
Escalate to FOS: If the lender rejects your claim or does not respond within the timeframes set by the FCA, escalate the matter to the Financial Ombudsman Service.

Key Takeaways

FSMA 2000 provides the regulatory authority that makes these claims possible.
Discretionary Commission Models were banned in January 2021; if your car finance predates this, you may be owed money.
Section 140A of the Consumer Credit Act 1974 is the primary tool for arguing that a "secret commission" created an unfair relationship.
Consumers are entitled to a refund of the difference in interest plus 8% compensatory interest.
Dealers had a legal obligation to disclose commission and manage conflicts of interest—failing to do so is a breach of FCA rules and the CPRs 2008.

Disclaimer

This article is for general informational purposes only and does not constitute legal or financial advice. Laws and regulations regarding car finance are subject to change, and individual circumstances vary. If you require legal advice, please consult a qualified solicitor or a regulated claims management company. For free, impartial advice, you can contact Citizens Advice or the Financial Ombudsman Service.