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Regulators want to give more time to car dealers potentially facing a deluge of claims over poorly sold financing deals.
A ruling by Court of Appeal judges has sparked an ongoing saga over hidden commission payments, with buyers possibly awaiting payments totaling billions of pounds.
The Financial Conduct Authority (FCA) is now consulting on the possibility of giving dealers more time to deal with complaints.
However, lawyers say this could further delay compensation that should be paid to car buyers who may not have given informed consent for commission payments.
Who can queue to receive payments?
The vast majority of new cars, and many used cars, are purchased under finance deals.
Around two million are sold this way each year, with customers paying an initial deposit and then a monthly fee with interest for the vehicle.
As part of a series of complex and long-term developments, many of these agreements have come under intense scrutiny.
In 2021, the FCA banned transactions where the dealer received a commission from the lender, based on the interest rate charged to the customer. He said this creates an incentive for the buyer to be charged a higher interest rate than necessary.
Since January, she has been considering whether compensation should be paid to people benefiting from these agreements before 2021.
This has created the prospect of banks and other lenders being forced to make payments totaling millions of pounds.
Last month, a Court of Appeal ruling widened the scope of who could receive compensation, potentially increasing lenders' final bill to billions of pounds.
Why was the judges' decision so important?
While the initial investigations focused on discretionary commission agreements, which were banned in 2021, the Court of Appeal's decision widened the scope to all car finance commissions.
All three judges unanimously agreed that it would be illegal for the lender to pay a commission to the dealer without the buyer's informed consent.
In other words, customers must be clearly informed of and agree to the amount of commission that will be paid, without these details being buried in the terms and conditions of the loan.
Marcus Johnson
The test case involved Marcus Johnson, 34, who bought a Suzuki Swift
The hearing included the test case of Marcus Johnson, 34, from Cwmbran, Torfaen, who bought his first car – a Suzuki Swift – in 2017.
He was not informed that the car dealer was receiving a 25% commission, which was in addition to what he had to repay.
“I signed some documents and then drove away,” he told the BBC.
He said he had no choice but to resort to financing when he bought the car, describing it as “heartbreaking” to discover so much extra money had been taken.
“Someone in my situation at that time, not being able to buy a car like that with cash, would resort to financing,” he said.
Following the judge's ruling in his favor – and those of two other car buyers – banks set aside millions of pounds for possible compensation. Other lenders have temporarily suspended any new transactions.
The cost of compensation is estimated to be as high as £16 billion, analysts say.
How did the regulator react?
The FCA said the move could lead to dealers receiving a deluge of new complaints.
Some might come from people who had already been informed that they had no claim because they did not have a discretionary commission arrangement.
The regulator is consulting on extending the time car dealers will have to respond to complaints.
He also wants the Supreme Court to quickly make a decision on whether it will review the Court of Appeal's decision.
He wants an orderly compensation system, if it comes to that.
The Finance and Leasing Association, the trade body for car finance providers, described the FCA's plan as a “sound decision”.
However, others question whether this creates additional compensation delay for those who mis-sold these deals.
