The financial regulator banned the use of discretionary commission in January 2021, after estimating around 924,000 customers could be paying £500 million in additional interest costs every year. Car finance customers could be owed around £1,100, based on a four-year £10,000 motor finance loan that used a discretionary commission arrangement. So the total bill could be a staggering £1 billion.

The ban in 2021 led to high numbers of compensation claims against car finance firms from customers who are worried about how much they were charged before the ban.  But car finance firms – lenders and brokers – have been found to be rejecting most of these complaints because they don’t think they’ve acted unfairly. This has led to thousands of car finance customers escalating their complaints to the Financial Ombudsman Service, which has found evidence of unfair commission arrangements.

The regulator has now stepped in to use its powers under the Financial Services and Markets Act 2000 to review motor finance commission arrangements and sales prior to the ban. It is looking at whether car finance customers are owed compensation for being charged too much for car loans and has said it will ensure consumers are paid what they’re owed if it finds ‘widespread misconduct’.