How Car Dealers Profited From Secret Commission Agreements
Car buyers paid more than expected for years due to undisclosed commissions in dealer-arranged agreements. These commissions allowed dealers to manipulate interest rates, inflating customer costs without their knowledge. Regulators have now intervened, but many affected buyers may still be eligible for compensation.
What Are Secret Commission Agreements?
A secret commission agreement occurs when a car dealer earns extra money from a lender without informing the customer. The dealer negotiates a higher interest rate, keeping some additional charges as commission. Buyers trust dealers to offer fair deals, but hidden incentives encourage them to prioritize profit over transparency.
How Did This Work in Practice?
Dealers had the power to adjust interest rates within an agreed range, often increasing them for higher commissions. A customer might believe they secured the best rate, unaware the dealer inflated it for extra earnings. This practice left many paying thousands more throughout their repayment period. Using a mis-sold car finance calculator can help affected buyers estimate potential compensation and assess their claims.
How Much Extra Did Customers Pay?
Regulators found that customers paid significantly more due to these commissions. The Financial Conduct Authority (FCA) estimated that affected buyers overpaid by £300 to £1,100 on average. Excess payments likely reached billions, with millions of agreements signed under these terms.
What Did the FCA Do About It?
The FCA banned discretionary commission models in 2021 to prevent further exploitation. Dealers can no longer adjust rates for personal gain, ensuring fairer terms for customers. However, the ban does not compensate those who previously overpaid under the old system.
Are You Eligible for Compensation?
Many customers can claim refunds if they unknowingly paid inflated charges. Claims could succeed if dealers failed to disclose commissions or manipulated interest rates unfairly. Legal experts believe the total compensation pool could reach billions if widespread claims succeed. A recent car finance case that could cut lenders’ £30bn bill has drawn further attention to unfair practices, encouraging more affected buyers to take action.
How to Check If You Were Affected
You could be affected if you arranged a deal through a dealership between 2007 and 2021. Reviewing paperwork for interest rates and dealer commissions may provide clues. If unsure, legal firms and consumer rights organizations can help determine eligibility.
What Should You Do Next?
- Gather documents related to your agreement, including contracts and statements.
- Contact the dealer or provider and ask whether the commission was applied.
- Seek advice from the Financial Ombudsman Service (FOS) or a claims specialist.
Final Thoughts
Many unknowingly paid more than necessary due to secret commissions embedded in agreements. The FCA has taken steps to prevent future misuse, but past victims deserve redress. Checking eligibility now could lead to thousands in refunds, restoring fairness to those overcharged.
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