Regulators want more time for car dealers facing a deluge of claims for mis-sold finance deals.

A decision by Court of Appeal judges has opened up an ongoing saga of hidden commission payments, with buyers potentially in line for payments totaling billions of pounds.

Now the Financial Conduct Authority (FCA) is consulting on whether to give dealers extra 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 their informed consent to the commission.

The vast majority of new cars, and many second-hand ones, are bought with finance agreements.

About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest on the vehicle.

In a series of complicated and lengthy developments, many of these agreements have been analyzed.

In 2021, the FCA banned transactions where the dealer received a commission from the lender based on the interest rate charged to the customer. It said this provided an incentive for a buyer to be charged a higher than necessary interest rate.

Since January, it has been looking at whether compensation should be paid to people on these deals before 2021.

This created the prospect of banks and other creditors having to make payments totaling millions of pounds.

Last month, a Court of Appeal decision widened the net to those who could receive compensation, potentially pushing the final bill for creditors into billions of pounds.

While the original investigations looked at discretionary commission arrangements, which were banned in 2021, the Court of Appeal decision widened the scope to any car finance commissions.

The three judges unanimously agreed that it would be illegal for the lender to pay any commission to the dealer without the buyer’s informed consent.

In other words, customers should be clearly told how much fee will be paid and agree to it, without these details being buried in the terms and conditions of the loan.

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 being paid a 25% commission which was added to what he had to pay back.

“I signed some documents and then drove away,” he said the BBC.

He said he had no choice but to use the finance when he bought the car, describing it as “heartbreaking” to find out so much extra money had been taken.

“Somebody in my situation at that time, not being able to buy that kind of old car with cash, you’d use financing,” he said.

After the judges ruled in his favor – and two other car buyers – the banks set aside millions of pounds for possible compensation. Other lenders have temporarily suspended any new offers.

It is believed the cost of compensation could reach £16 billion, according to analysts.

The FCA said the decision could lead to dealers receiving a flood of new complaints.

Some may come from people who were previously told 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 make a quick decision on whether to reconsider the Court of Appeal’s decision.

He wants an orderly system of compensation, if it comes to that.

The Finance and Leasing Association, the trade body for car finance providers, described FCA’s plan as a “sensible move”.

However, others have questioned whether it creates an additional delay in compensation for those who have been mis-sold these agreements.