In addition to tricking drivers, the the scandal has engulfed lenders such as Lloyds Bank, Santander, Barclays and Close Brothers, causing fears of a PPI-style compensation bill of up to £30bn.

Stephen Haddrill, the head of the Finance & Leasing Association, which represents hundreds of car lenders, said the FCA had failed in its duty to protect consumers by not forcing dealers to disclose they were being paid by the banks.

“On the confidentiality point, if it is so clearly right (to disclose it), why did the FCA allow it to continue?” he told a House of Lords committee on Wednesday.

“I think it has failed. It would have been much better if that disclosure had been made.”

Lord Grabiner, barrister who sits on the Lords committee, said he could not understand why the FCA had failed to ban all forms of commission between lenders and retailers as early as 2020.

He also remained puzzled by the FCA’s oversight of not forcing lenders to disclose commission payments to motorists.

“What I do not understand is how the FCA could not have concluded that this was detrimental to the position of the consumer if the broker or dealer was entitled to conceal the fact that there was a separate and second commission being earned,” he said.

Several questions about the FCA’s decision-making are likely to put fresh pressure on the embattled Rathi, who has been under growing criticism over his handling of the body.