Discretionary Commission Arrangements - Compaints and refunds

Lloyds Bank, Blackhorse Finance and the FCA investigation


Currently, every single news outlet is carrying the story\headline that Lloyds Bank has set aside a staggering £450 million to cover the potential cost of an investigation by the Financial Conduct Authority (FCA), the UK’s financial regulator.

Lloyds is perceived in the City as the most vulnerable of the major banks to any claims, as it owns one of the UK's largest motor finance providers, Black Horse Finance; this could be one reason as to why its shares fell around 10% at a cost of £3 billion since the Financial Services announcement in January.


Lloyds disclosed the provision as it announced a big rise in annual profits.

The bank said “pre-tax profits jumped to £7.5bn last year, which was higher than expected and up 57% from the year before”. Interesting, but not necessarily linked to any misconduct in their car loan division.

Lloyds chief executive Charlie Nunn said: "The extent of any misconduct or loss on behalf of customers, if any, remains very unclear so we welcome the FCA's announcement a few weeks ago to look into this to provide clarity for customers and the industry."

Following a record number of complaints from customers to car finance companies, last month (January 2024), the FCA embarked on a review into past commission arrangements in the motor finance market, to establish whether consumers who were charged too much for their car loan are due compensation. More on this further down.

It is worth noting that in January 2021, the FCA vetoed selling operations known as “discretionary commission arrangements”, stating that it would collectively save drivers £165 million a year. It seems shocking that these were ever utilised in the first place. So, while this practice has been prohibited since 2021, independent complaints arbitrator the Financial Ombudsman Service (FOS) states that it has heard from more than 10,000 people who fear they were overcharged in this way. The FOS has also recently ruled in favour of two consumers on the matter, prompting the FCAs scrutiny. We might expect such dealings in the sub-prime market, where customers have poor or non-existent credit ratings, or have CCJs against them, as usually they are treated less favourable than those who don’t have these problems. Car finance companies such as Blue Motor Finance, Go Car Credit, Moneybarn etc., who typically lend to such customers, have seen complaints arise and compensation paid out as a result of this type of commission arrangement. We might think that lenders such as Lloyds/Blackhorse, Barclays, NatWest, Santander, HSBC et al, who typically lend to the prime market with more competitive interest rates and deals, would have avoided such dubious arrangements, but it appears not. I would imagine that all the banks with a car finance division are somewhat quaking in their boots as a result of this investigation, as some news agencies are comparing this latest issue to be on a par with the PPI scandal.

Santander reported that it had received “a number of county court claims and complaints” about the issue following the FCA’s review, but did not imply how this would financially impact them. Barclays acknowledged the review in its full-year results published this week, but did not give any further details or estimated costs.

So why was this investigation launched? The FCA have stated that their main concern is the way finance companies paid commission to dealers and brokers, which, incredibly, rewarded them for charging higher interest rates to customers! They found that car finance companies were inclined to use reward models that linked commission payments to interest rates and amounts borrowed, rather than a flat rate of commission for selling the finance. So, to put it bluntly, the more money you borrow, the more commission the dealer earns, and the higher interest rate you pay, the more commission the dealer earns. It is not hard to see how this inevitably leads to a conflict of interest where a dealer will encourage a buyer to borrow more money for a more expensive car, or even to put in less cash upfront deposit wise and borrow a higher amount; both would mean that the dealer profited from larger commission payments. This is obviously unfair on consumers, and is deemed as “mis-selling”, and thousands have complained about this when they have recognised that this happened to them.

The FCA state: “If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance.”

Another mis-selling complaint which has forced car finance companies, both prime and sub-prime, to pay compensation is that essential financial checks, such as evidence of income and verification of outgoings, along with credit record checks were not nearly rigorous enough, leading to consumers having loans that they could not actually afford. Claims Management companies such as Redbridge Finance have seen first-hand the evidence submitted in order to get a loan, with credit records detailing other current loans, missed payment charges, defaults or evidence of consistent gambling activity. If checks made by the lenders were meticulous enough, which they should be, then these issues would have been picked up, and a loan refused, as the customer could not afford it.

Unfortunately, some borrowers believe that if they are granted a loan, then they can afford it. They also might think that if they can make their car loan payment on time each month, then the loan is affordable. Meanwhile, they are struggling to pay other bills, and are in some cases, forced to take out further loans to cover essential day to day living costs. The FCA and the FOS however, assert that a loan of any sort is only “affordable” if repayments can be made on time, without hardship, and other financial commitments can be met.

With regard to the discretionary commission arrangements, the FCA stated that if its investigation finds that consumers have been disadvantaged because of widespread misconduct, it will ensure that compensation is granted in a systematic and structured way. They aim to publish their next steps in September, so roughly in the next seven months.

Redbridge Finance has helped many customers who feel that they were mis-sold vehicle finance, based on the issues mentioned above; we can investigate the thoroughness of checks, or as the Financial Ombudsman Service puts it, “reasonable and proportionate checks”, to ensure that the borrower was abler to make the repayments for the whole duration of the loan, and establish if the borrower was given a fair deal by the broker or dealer and not overcharged due to “discretionary commission arrangements”, We can represent you and your claim that you were unable to afford the loan or you paid too much in commission, and if we do not agree with the lender’s decision (this being a “no” to a refund or compensation, or an offer that we feel is too small), we will then pass your case on to the Financial Ombudsman.


These complaints may take many months. You will have to keep up the loan repayments during this time, or your car may be repossessed.


If you have had problems paying your loan, or you think you have been mis-sold a loan, then you could be entitled to a refund and/or compensation. Equally, if you feel that you have been treated unfairly, for example if your financial circumstances changed and the lender did not try to help you in any way, contact Redbridge Finance today by going to www.redbridgefinance.co.uk, sign up, and we can assess if you have a claim.