Lenders have been told by the City watchdog they now have until December 4 next year to respond to borrowers complaining about motor finance deals with hidden commission payments.

The Financial Conduct Authority (FCA) said it follows a London Court of Appeal ruling in October that it was unlawful for car dealers to receive commission on motor finance from lenders without a customer’s informed consent.

It said the extension regarding non-discretionary commission payments was in line with the extension it provided for complaints involving discretionary commission agreements.

Motor finance is an important market, serving over two million consumers a year

The FCA said: “Firms who provide motor finance are likely to receive a high volume of complaints in response to the judgment.

“We have extended the time firms have to handle complaints to help prevent disorderly, inconsistent and inefficient outcomes for consumers and firms.”

Close Brothers was granted permission earlier this month by the UK’s highest court to appeal against the landmark ruling on motor finance commission.

The Supreme Court said the banking group could challenge the earlier judgment in the Court of Appeal.

It marked the latest development in the looming crisis facing the motor finance industry, with major lenders on the hook for potentially billions of pounds’ worth of compensation.

The October court decision opened the door for a potentially fresh wave of complaints from consumers who think they may have been mis-sold car finance in previous years.

On the Supreme Court appeal, the FCA said it planned to apply to “formally intervene in the case to share our expertise to assist the Court”.

“We previously wrote to the Court asking it to decide quickly whether it will give permission to appeal and, if it does, to determine the substantive appeal as soon as possible,” the FCA added.

The regulator said the complaint handling extension also covers motor leasing, despite it not being covered in the Court of Appeal’s judgment, as well as motor finance credit arrangements.

The FCA has been carrying out a separate investigation into so-called discretionary commission arrangements, which saw dealers fix higher interest rates on credit agreements, meaning consumers were charged more without knowing.

The practice was banned in 2021.

The FCA is aiming to set out the next steps in its review in May next year, when it also hopes to provide an update on non-discretionary commission agreements complaints.

The FCA said: “What we can say in May will depend on the progress of the appeal to the Supreme Court and the timing and nature of any decision.

“If we can end the complaint handling extension sooner than December 2025, we will.”

The FCA added: “Motor finance is an important market, serving over two million consumers a year.

“In deciding next steps, we’ll consider how to make sure affected consumers are appropriately compensated and the market continues to work well, with effective competition.”