UK lenders provided upfront “advance commissions” cash payments to car dealers

UK lenders paid “advance commissions” to car dealers. According to legal filings related to the motor finance scandal, this practice may have incentivised them to push more expensive loans onto consumers.

Court documents seen by The Guardian reveal that lenders, including Lloyds Banking Group, provided lump-sum commission payments upfront to individual dealerships—amounting to millions of pounds, campaigners claim.

The filings suggest that these payments encouraged sales staff to direct customers toward specific loan providers, even if it resulted in higher costs for the borrower. Crucially, these advance commission arrangements were not explicitly disclosed to consumers and allegedly created conflicts of interest that harmed customers.

Dealerships faced financial consequences if they failed to generate enough loan sales to justify their pre-paid commission, potentially affecting their profitability, cash flow, or lender relationships.

A county court hearing last year was told that Lloyds’ £15bn motor finance division, Black Horse, continued paying advance commissions to some dealerships until at least April 2024. Santander UK still offers these commissions, according to its website, while Barclays previously provided them before shutting its motor finance division in 2019.

The motor finance scandal, which has been unfolding for over a year, is projected to cost lenders—including Santander UK, Close Brothers, Barclays, and Lloyds—a collective £44bn, bringing it close to the scale of the PPI (Payment Protection Insurance) scandal, which cost banks £50bn.

The concerns over advance commissions were raised by the campaign group Consumer Voice as part of its effort to intervene in a pending Supreme Court case that will play a key role in determining compensation.

While Consumer Voice’s attempt to present its evidence was rejected—along with a separate intervention by Chancellor Rachel Reeves—co-founder Alex Neill called the use of advance commissions “a cause for concern.”

Neill, a former executive at the consumer rights group Which?, stated:

“We have seen reports of car dealerships being paid nearly £15m in advance commissions. Consumers are rightly angered by these and other practices that led to millions of hardworking people being overcharged. Car finance customers want firms held accountable, and that can only happen by bringing claims against lenders for the civil bribery they initiated.”

The scandal escalated in October when a Court of Appeal ruling expanded the Financial Conduct Authority (FCA) investigation into motor finance commissions. The court found that lenders paying undisclosed commissions to car dealers, who then arranged loans without informing borrowers of the commission’s sum and terms, was unlawful.

Two lenders at the center of the case, Close Brothers and FirstRand, are appealing the ruling at a Supreme Court hearing set for 1-3 April.

While the issue of advance commissions is not explicitly included in the Supreme Court case or the ongoing FCA investigation—which is focused on a different type of commission arrangement banned in 2021—concerns about the practice persist.

Baroness Sharon Bowles, a member of the Lords financial services regulation committee, has called for further scrutiny of advance commissions. She questioned FCA chief executive Nikhil Rathi about the issue in a hearing last month, stating:

“This is surely a matter that should be investigated and ruled on further, even if it is not explicitly addressed in the Supreme Court case.”

Santander UK has allocated £295 million to cover potential payouts related to the broader motor finance scandal. On Thursday, Lloyds was forced to set aside an additional £700 million, bringing the total provision for potential compensation to nearly £1.2 billion.

Lloyds executives acknowledged that “significant uncertainty remains around the final financial impact.”