Lloyds Banking Group and Barclays have both announced they are facing billions of pounds in new costs to cover a late rush of claims for the mis-selling of Payment Protection Insurance (PPI).
The lenders said they underestimated the number of complaints they would receive in the run-up to the 29 August deadline and will increase provisions following a spike in claims before the cut-off. Lloyds expects to take another PPI charge of between £1.2bn and £1.8bn in the third quarter, while Barclays expects to put aside between £1.2bn and £1.6bn.
The huge provisions show how banks in Britain are still battling with the legacy of the scandal, even after the Aug. 29 deadline for consumers to complain, as a rush of customer enquiries in the run-up to that date forced them to set aside more compensation money.
PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs, but many were unsuitable.
Britain's High Court in 2011 ruled that consumers could retroactively seek compensation for mis-sold policies with lenders having paid out more than £36bn in total and the final tally expected to top £50bn.
RBS said last week it faced additional costs of up to £900m, while Clydesdale Bank made a fresh £300m-£450m provision.
In August, Lloyds received between 600,000 and 800,000 so-called "information requests" from potential PPI victims a week, far exceeding the 70,000 a week it was receiving at the start of the year. The fresh charge, which takes the total Lloyds has set aside for PPI to almost £22bn, prompted the bank to suspend its £1.75bn share buyback programme for the rest of the year.
Lloyds is continuing to target paying a dividend and said it would make a decision on surplus capital at the end of the year.