The future of Discretionary Commissions: Where next and what now?

Since January 2024, the handling of complaints related to discretionary commission arrangements (DCAs) has been on pause while the FCA investigates and determines the most suitable next steps to respond to concerns over poor customer treatment. In September, this pause was extended to December 2025 to allow for further analysis of the data received and certain cases to be determined through the Court of Appeal. On 25 October, the Court of Appeal released decisions in three cases, in favour of the consumer, and ordering the re-payment of commissions plus interest. These decisions have a major impact for firms operating in the motor finance industry and will be key to the FCA’s decisions on necessary interventions.

Whilst it is possible the position changes following further appeal, firms should consider what actions to take in response to these decisions, and how to set up effectively for the FCA’s decisions on interventions in 2025. If your organisation is affected, several lessons can be learnt from previous large remediation efforts. These guide important steps that you should take immediately.

What considerations should be made following the Court of Appeal rulings for current and future business?

The rulings heavily emphasise the importance of active, transparent, and accessible disclosures to consumers. It is also clear that lenders cannot rely solely on brokers’ understanding of the rules and are likely to share responsibility if things go wrong. Firms should take steps now to review their disclosure requirements and standard language to ensure that they are simple to understand and unambiguous.

Lenders also need to ensure that brokers proactively adhere to expectations on disclosures. Simply providing the broker with an instruction that they should disclose is unlikely sufficient. Lenders should consider what evidence they have and can obtain from brokers to demonstrate that disclosures are made and accepted by the consumer. Lenders should also consider what expectations, training, and communications they need to issue to their broker network to ensure an understanding of expectations on disclosures.

What can be learned from previous large remediation efforts?

While Payment Protection Insurance (PPI) often comes to mind, many other products have also required large-scale remediation efforts. These include Mortgage Endowments, Packaged Bank Accounts, Annuities, Investment Products, Defined Benefit Pension transfers, and more recently, the treatment of borrowers facing financial difficulties and industry-wide forbearance practices. Lessons from the remediation of these products will guide understanding of how the FCA will intervene on DCA for affected firms.

For example:

1. Do not take shortcuts or underestimate the scale and complexity of the task

Shortcuts may result in a need to remediate your remediation. Gaps in remediation policies, assessment frameworks, poor quality control, and weak risk oversight have resulted in firms making the wrong decisions for their customers. This has led to delayed, inadequate, or non-existent compensation for customers, and mishandling of complaints. Instead, establish your quality controls and governance structure and test that they can be operationalised to give you the control and oversight you need. Clearly articulate the approach and provide comprehensive guidance to case handlers to ensure they consistently achieve the expected outcomes.

2. Getting your resource model right

Organisations have experienced quality issues driven by inexperienced or overstretched complaint handling resources and a lack of senior leadership support to provide expertise. In some cases, this has resulted in the FCA enforcing a section 166 order on the firm, increased costs through higher FOS referrals, and organisations having to change the resource model halfway through the remediation activity. FCA interventions will have a widespread impact across the industry, making it even more crucial to get your resourcing model right, especially as the demand for skilled resources is expected to grow. To get ahead, model your capacity requirements based on potential scenarios and determine how these will be resourced. Consider a range of options and identify opportunities to leverage automation and technology.

3. Set yourself up for success

History has taught the importance of making sure you have the right systems, controls, processes, and policies in place to manage the large influx of customer and third-party communications after FCA interventions have been announced. Before this happens, ensure you’ve reviewed your existing processes for receiving and logging complaints and claims ensuring the appropriate controls are in place . Additionally, focus on staff training including a clear approach to assessment to ensure the right outcomes are achieved.

Specific activities to consider starting now:

1. Management of incoming complaints: Instead of simply pausing cases, ensure they have been logged correctly, check that non-DCA related complaint points are handled separately, and duplicates are removed.
2. Review historic practices: Understand your level of regulatory compliance at the time products were being sold with DCA to help inform your remediation assessment frameworks.
3. Review your current operation with a view to the several interventions the FCA may take: Ensure your current operation is the best it can be. Use this time to ensure you have the right controls, skills, and frameworks in place that can easily transition over to a remediation operation. For example, when it comes to customer data, check the various formats and systems are collated into one central location, easily accessible, and able to support potential automation solutions , like the automation of redress calculations.
4. Regulatory engagement: Maintaining strong communication with regulators during their consideration of interventions is vital to ensure alignment, demonstrate transparency, and proactively address any concerns.

Use these upcoming months to thoroughly prepare and assess your position. This preparation phase presents a strategic opportunity to gain a competitive advantage by staying ahead of the curve. Inaction or delayed response may expose you to significant financial, operational, and reputational risks. By acting now, you ensure readiness for the FCA’s next moves and protect your business from future challenges.