What Is a Discretionary Commission Arrangement (DCA)?

What is a discretionary commission arrangement (DCA)?

A DCA is a commission model in which the dealer or broker could choose your interest rate within a range set by the lender, and earned more commission the higher they set it. The FCA banned this practice on 28 January 2021.

The lender set a "target" rate and a higher ceiling. The broker could then push your rate toward the ceiling, and the difference between the two was paid to them as commission. Moving it up earned more commission. That is a clear conflict of interest, because the person arranging your finance was rewarded for charging you more.

On a typical deal, a 2 to 3 percentage point increase in the APR could mean hundreds of pounds of extra interest over the term. You paid it, and it went to the broker as commission. That conflict is why the FCA banned DCAs. Whether it made your relationship with the lender "unfair" is a legal test under section 140A of the Consumer Credit Act 1974, the test the Supreme Court applied in August 2025, and the FCA's scheme treats an undisclosed DCA as unfair unless one of its exceptions applies.

To see what that gap costs on your own numbers, the true cost of interest calculator turns any quoted rate into the total interest you'd pay over the term.

DCA vs other commission types

The 2026 scheme treats three commission problems differently. A DCA is the clearest, but a large fixed commission (a high-commission arrangement) or a hidden contractual tie can also qualify if it was not disclosed.

Eligibility was tightened between the consultation and the final scheme (PS26/3). The FCA excluded 0% and minimal-commission deals, because there was no commission-driven conflict to put right.

Did your agreement have one?

You often can't tell from the credit agreement alone, because DCAs were rarely spelled out. The strongest clues are the start date, whether a dealer or broker arranged it, and how your rate was set.

The surest way to find out is to ask the lender directly. Our letter template asks whether a DCA applied and how much commission was paid.

• Your finance started between 6 April 2007 and 28 January 2021 (DCAs were banned on the latter date; the wider scheme window runs to 1 November 2024 to catch high-commission and tie cases too).
• It was arranged by a dealer or broker, not a loan you set up directly with a bank.
• Nobody clearly explained how your interest rate was decided or what commission was paid.
• Your APR feels higher than rates advertised around the time you took the deal out.

Why DCAs were unfair

DCAs were unfair because they rewarded the broker for making your finance more expensive, without telling you. Your interests and theirs pulled in opposite directions.

The Supreme Court examined this conflict on 1 August 2025, applying the unfair-relationship test in section 140A of the Consumer Credit Act 1974. The FCA had already acted: it banned DCAs on 28 January 2021 after a market review found widespread harm. The ruling made clear that non-disclosure alone will not necessarily make the relationship unfair: it is one factor, weighed with others such as the size of the commission and any hidden tie with the lender.

The FCA's redress scheme (PS26/3, made 30 March 2026) followed, to apply the same logic across the industry rather than case by case in court. Parts of it have been suspended by the Upper Tribunal since 29 June 2026 while a legal challenge is heard, from 16 February to 3 March 2027.

Which years are affected?

The scheme window runs from 6 April 2007 to 1 November 2024, but DCAs themselves were in use only until the FCA ban on 28 January 2021. Deals arranged after the ban should not carry a DCA.

The window runs past the ban because the scheme also covers high-commission arrangements and contractual ties that continued after DCAs ended. So even a 2022 or 2023 deal could be in scope, but only if an undisclosed high commission or tie applied.

If your deal sits inside that window, it's worth checking. Any figure you see is an estimate, not a promise. Nobody is guaranteed a payout, and the amount depends on your own agreement.

How redress is worked out for a DCA

For most DCA cases, redress is the average of an estimated loss and the commission paid, plus interest on top. The average across the scheme is about £829 per agreement.

In practice the lender estimates your loss as the interest you would have saved if your APR had been 17% lower (agreements from 1 April 2014) or 21% lower (earlier ones), averages that with the commission paid, adds simple interest at the annual average Bank of England base rate plus 1%, with a 3% minimum in any year, and then checks the result against three limits, which cap about one in three cases. The most serious cases, close to the Supreme Court's Johnson case, get all the commission back plus interest. Any figure you see is an estimate, not a promise. Nobody is guaranteed a payout, and the amount depends on your own agreement.

The three steps the lender follows

Under PS26/3, a DCA redress calculation runs in three stages: identify, reprice, reconcile. The lender does this when it assesses your agreement.

You don't have to do the maths yourself. Under the scheme rules the lender works it out, tells you in writing if you qualify, and explains how it reached the figure. While parts of the scheme are suspended, lenders do not need to calculate or pay compensation, and payouts are expected in 2027 at the earliest, if the scheme is upheld and the judgment is not appealed. If the number looks wrong when it comes, you can ask for the workings, and if you still disagree, the Financial Ombudsman will recheck it for free.

1. Identify whether a DCA applied to your agreement and what commission was actually paid to the broker.
2. Reprice the deal to estimate your loss: the interest you would have saved with an APR 17% lower (agreements from 1 April 2014) or 21% lower (earlier ones), averaged with the commission paid.
3. Reconcile the figure by adding simple interest at the annual average Bank of England base rate plus 1%, with a 3% minimum in any year, then apply the cap if your case falls into the roughly one-in-three that is capped.