When you buy a used car on finance, you typically negotiate with or through the dealer but the agreement is with a finance company or bank such as Black Horse (Lloyds Banking Group), Santander or MotoNovo.  There is an operating agreement which sets out the relationship between the dealer and the finance company, this includes the terms around any commission the dealer receives for selling the finance.

Until January 2021, the operating agreement typically included the dealer being paid ‘discretionary commission’.  Under this model, the dealer had full discretion to set the interest rate you paid within a certain band (for example between 5% and 15%), but under these agreements, the higher the interest rate agreed, the higher rate of commission the dealer would make.

In practice, this incentivises dealers to offer customers the highest interest rate possible, rather than competing to offer the lowest and most attractive rates.

For example, the dealer might receive 12% commission if they agreed finance at 14% APR or 5% commission if they agreed finance at 9% APR but no commission at all if they agreed finance at lower than 6% APR.  These numbers are illustrative only as the commission agreements between the dealers and finance companies are not public. 

The UK Financial Conduct Authority launched an investigation into discretionary commission.  In its Final Findings, it stated that discretionary commission arrangements may be leading to significant consumer harm, and some customers are paying significantly higher interest rates than they would otherwise have paid under an alternative commission model. 

The FCA banned this conduct with effect from 28 January 2021.  The ban protects consumers on a forward-looking basis but does not recover the significant losses that consumers have already suffered (and in some cases continue to suffer) under finance agreements entered into before 28 January 2021.  

The claims are to recover these losses on behalf of consumers who entered into finance agreements for used cars with Black Horse, Santander or MotoNovo. Those who did so between 1 October 2015 and 27 January 2021 will be automatically included in the class unless they choose to opt-out.