Tuesday is "crunch time" for lenders including Lloyds and Close Brothers, analysts said, as the UK's Supreme Court hearing begins into the motor finance mis-selling.
The case relates to claims from car finance borrowers seeking redress over undisclosed commissions paid to motor broker-dealers.
A previous Court of Appeal ruling found that borrowers could be entitled to compensation if commissions were undisclosed, based on the premise that dealers owed a fiduciary duty to borrowers.
But the Supreme Court said in December that it would allow Close Brothers Group PLC (LSE:CBG) and another lender to appeal the ruling – though this case potentially opens the door for all motor finane lenders, including Lloyds Banking Group PLC (LSE:LLOY), Santander (LSE:BNC) and Barclays PLC (LSE:BARC), Secure Trust Bank PLC (LSE:STB) and Vanquis Banking Group PLC (LSE:VANQ) to potentially have to pay many million and possibly billions in redress.
"There’s a lot on the line," said Matt Britzman, senior equity analyst at Hargreaves Lansdown, who highlighted Lloyds as the most exposed of the FTSE 100 banks.
"It’ll likely be a few months before the outcome is known, but some estimates suggest it could cost Lloyds around £6 billion if it’s forced to refund all motor finance commissions."
Lloyds already set aside £1.2 billion, with analysts expecting to see a further £1.3 billion in charges, suggesting a total cost of around £2.5 billion.
"That means there’s hope that any remedy will be a proportion of the total commissions - but the reality is, it’s an unknown that’s likely to weigh on sentiment for some time yet," the analyst added.