How advance commissions may have affected your car finance costs

Undisclosed commissions have been central to the Financial Conduct Authority’s (FCA) investigations into motor finance commissions and associated consumer harm. The regulator’s initial investigation, and much of the subsequent coverage, focused on discretionary commission arrangements (DCAs), through which the broker could adjust the interest rate offered to you to earn a higher commission.

Commissions did not always operate in such a direct, rate-linked way, but may still have increased your overall cost of borrowing. A further feature of the market, and one that warrants closer attention than it has received to date, is the use of advance commissions, sometimes also referred to by the FCA as ‘advanced commission’. These payments were made to brokers, who were typically car dealerships, and may have frequently operated in tandem with tied agreements between brokers and lenders. The FCA addresses these ties in its redress proposals.

Why do advance commissions and tied agreements matter?

The core issue is informed choice. You cannot assess your options properly or make informed decisions if a broker does not make clear the incentives and constraints shaping its recommendations.

The regulator’s redress proposals aim to address consumer harm arising from various undisclosed commission-related issues, including contractual ties. In CP25/27: Motor finance consumer redress scheme, the FCA suggests in paragraph 4.64 that some commercial arrangements, including a short-term cash-flow facility sometimes called ‘advanced commission’, may offer a benefit to the broker without a specific link to lending referrals. That distinction may be open to challenge in practice, particularly where an ‘advanced commission’ arrangement operates alongside a tied distribution relationship.

What is an advance commission?

An advance commission is an upfront payment made by a lender, or an associated entity, to a broker, typically before the broker has generated the finance business to which the payment relates. In CP25/27, the FCA uses the term ‘advanced commission’ when describing a short-term cash-flow facility that can be set off against commission or repaid by other means.

Advance commissions may appear in several forms, including:

• Upfront payments intended to be set off against commission earned on future agreements.
• Support payments presented as marketing support, training support, technology support, or other forms of support funding.
• Volume-related advance payments, where the broker receives money at the start of a period and is expected to deliver a minimum level of business over that period, receiving additional commissions if a target is reached. Where a tied agreement exists, that minimum flow may be more predictable in practice.
• Retrospective clawback structures, where the lender may reclaim some or all of an upfront payment if volume targets are missed, the relationship ends, or certain quality thresholds are breached.

Advance commissions may not have changed your interest rate mechanically in the way that a DCA could. However, they can still influence outcomes because they change the broker’s incentives and, in some structures, the broker’s practical willingness and ability to present genuinely competitive alternatives.

In February 2025, The Guardian reported allegations that some lenders paid upfront lump sums to dealerships and that these payments may have created incentives to steer customers towards particular lenders.

How might advance commissions have influenced your outcome, even if the broker did not choose your interest rate?

Commissions shape behaviour. An advance payment may influence the sales process in several ways.

1. Steering incentives

If a broker has already been paid, the broker has a strong incentive to introduce you to the paying lender to justify or ‘work off’ the advance, avoid clawback, preserve future support, or protect and strengthen the commercial relationship.

2. Target and volume pressure

An advance commission is often part of a wider commercial arrangement in which the broker is expected to deliver a minimum volume of agreements. That can create pressure to prioritise volume over suitability and to compress the decision-making process.

3. Undisclosed exclusivity in practice

A broker may present a ‘panel’ of options, creating an illusion of competition and choice. However, the commercial reality is that one lender is the preferred route, or the only route meaningfully presented, because the broker is economically committed to that relationship, particularly if there may be a clawback if targets are not met.

4. Reduced competition and weaker price tension

Where one lender is preferred or prioritised, there is less competition at the point of sale. Even if the commission structure itself did not directly increase your interest rate, you can still experience harm through reduced access to better alternatives.

These are reasons why an analysis that treats advance commissions as potentially ‘unlinked’ from referrals requires scrutiny. In practice, lenders do not make upfront payments to brokers in a vacuum.

What is a tied agreement?

A tied agreement or contractual tie is an arrangement between a broker and a lender that limits the broker’s freedom to offer competing lenders’ finance products and can include:

• Exclusivity, where the broker can only place finance with one lender.
• Near exclusivity, where the broker is expected to place a high percentage of its customers who take motor finance with one lender.
• Right of first refusal, where the broker must offer the business to one lender first and can only go elsewhere in limited circumstances, often if the lender with the right of first refusal refuses to extend credit to the customer.

Tied agreements can cause consumer harm, particularly when not adequately disclosed. You may reasonably assume the broker is free to select from a range of lenders when, in reality, the broker must prioritise a tied lender.

The FCA’s redress proposals recognise that an inadequately disclosed tie that materially constrains the broker’s independence is likely to give rise to an unfair relationship, particularly where you are led to believe the broker is acting independently.

Why paragraph 4.64 of CP25/27 is potentially problematic

The regulator’s suggestion that certain cash-flow arrangements, including ‘advanced commission’, may lack a clear link to referred business depends on a narrow interpretation of ‘linked’. The FCA’s reasoning focuses on the absence of an explicit incentive and of a ‘clear link’ in those arrangements. It may be attempting to distinguish between:

• commission that is transaction-contingent; and
• commission that is relationship-based.

This distinction may exist as an accounting description. However, it often does not hold as an economic reality where there is a contractual tie. Even where an arrangement is described as a short-term cash-flow facility, it is difficult to separate the commercial rationale for that facility from the lender's expectation of future business flows, particularly when the broker's distribution is tied to that lender.

If a tie exists, there is a referral link

If a broker has a tied agreement with a lender, the broker’s entire flow of business, or most of it, is directed to that lender by design. In this setting, an advance payment is, in substance, part of the price of distribution.

Even if a lender does not label a payment as ‘per referral,’ the broker is still receiving the money on the basis that the lender expects the broker to refer business. Where the broker has limited ability to place business elsewhere, it is difficult to characterise this advance payment as anything other than referral-linked in practice.

The ‘but for’ point is unavoidable

In many tied arrangements where an advance commission has been paid, the relevant question is: would the lender have made that payment but for the broker’s role in originating and directing business? In many cases, the answer may be no.

Disclosure and fairness do not turn solely on a label or the timing of a payment

Disclosure and fairness in this area should not centre on a debate about what a payment is called or when it is paid, but on:

• conflicts of interest;
• whether you understood the broker’s incentives and constraints; and
• whether you were misled about the broker’s independence and the availability of alternatives.

An advance commission paid within a tied relationship may have undermined your ability to make an informed choice as effectively as other commission structures, particularly if the tie and the economics of the relationship were not explicitly explained to you.

Why this matters for motor finance mis-selling claims

Advance commissions and tied agreements matter for three practical reasons.

1. Your choice of finance options may have been restricted without your knowledge

If you were told that the broker could compare multiple lenders, but the broker was tied to a lender, this may form part of an argument that the relationship was unfair.

2. You may have paid more than you should have

Even without another commission mechanism, reduced competition at the point of sale can mean you receive a less competitive deal than you would have obtained in a genuinely competitive and transparent process.

3. The lender was not a bystander

Where lenders design, fund, and benefit from tied distribution models that are not adequately disclosed, they may be exposed to the consequences of that model.

Practical indicators that advance commissions or ties may have affected you

You may have been affected by an inadequately disclosed contractual tie if, when you arranged finance:

• you were told that the broker was independent or had access to a panel, but you were only shown or offered one lender’s finance deal;
• the broker discouraged you from exploring alternatives, or framed the offered lender as the only realistic option;
• your documentation suggested choice, but the sales process did not reflect it;
• the broker appeared keen to place the deal quickly or to keep you within a specific lending route; or
• you later discovered that your broker, typically the car dealership, had a close commercial relationship with the lender. This may include finance partner branding or sales materials carrying the lender’s branding.

None of these points proves mis-selling on its own; however, they are consistent with the market dynamics the regulator has been investigating.

How Harcus Parker can assist in assessing whether you were affected

You do not need to instruct a solicitor to pursue a car finance complaint or to participate in the FCA’s proposed redress scheme. While many consumers will choose to proceed themselves, there are circumstances in which instructing a solicitor may be helpful.

If you wish to have your position assessed, Harcus Parker can investigate your historical agreements and request the relevant information from your lenders, with a view to determining whether an unfair relationship arose, what redress may be due, and whether you may have grounds for any additional claims.

Register your motor finance complaint with Harcus Parker here.