What Is A DCA?

Discretionary commission agreement exchange between car dealer and customer
What is a Discretionary Commission Agreement? 

If you are wondering what a discretionary commission agreement is then you have come to the right place. If you financed a car in the UK between January 2008 to January 2021, you probably spoke to a dealer who offered you an agreement for your car that had a hidden discretionary commission arrangement. 

In a nutshell, DCAs were used by dealers, acting as brokers for finance companies, who could discreetly increase or reduce the rate of interest they offered – thereby altering customers’ monthly finance charges – to boost their commission at the expense of their customers. This allowed the dealer to make more money by charging you more interest than they should have. 

Why could your car dealer do this? 

It sounds ridiculous right? Well, your dealer could do this under the now-banned use of ‘dealer discretion’ which is used to increase interest rates at will. 

How does a DCA work? 

If you want to understand exactly what a discretionary commission agreement is, imagine a scenario where you as a customer need to buy a car. The dealer or broker you speak to could offer you a base interest rate. However, increase this rate at their discretion to earn their commission. This leaves you overpaying without knowing. 

Now, if this happened to you, you would have been charged more for your car than you expected. Maybe you didn’t notice the added charge, because you simply did not look at the payment charges as they were taken from your account. The DCA is hidden in a higher interest rate- brokers would advise customers that it is the best deal and would not tell them that it includes DCA. 

Why would your dealer do this? 

Your dealer would have an obvious reason to raise your interest rate because this would count as their commission. They get more money, all from increasing your interest rate. 

Why are discretionary commission agreements problematic? 

The problem around these agreements is linked to their capability to cause conflicts of interest. You as a customer could be led into financial loss as a result. Understandably – consumers and regulators are concerned over this issue. 

Why did I not know about DCA’s? 

These raised interest rates are not clear to those unfamiliar with financial lingo, or contract term knowledge. Therefore it can be the case that those customers who are most vulnerable face higher financial loss due to these raised rates. 

What changed? 

In January 2021, the FCA banned using a discretionary commission agreement, making it illegal for dealers to use them.

Have you been a victim of this banned practice? 

If so, you may have the option to claim compensation for mis-sold car finance. 

How to claim? 

Have you noticed a higher interest rate on your finance agreement that you were unaware of? If so, you may have the option to claim compensation for mis-sold car finance. 

My Car Finance Claim works proudly as a trading style of Barings Law, who offer financial compensation for those victimised by mis-sold car finance loans. 

Click the button below to start your potential claim, using our simple 3-step process. 

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