Shares in big UK banks fell on Monday after a report that the Financial Conduct Authority is preparing to publish details of its motor finance misselling compensation scheme.
After the Supreme Court decision at the start of August, it has been estimated that the redress scheme could cost lenders between £9 billion and £18 billion.
The Financial Conduct Authority (FCA) will share the results of its consultation on the redress scheme on Tuesday, after market close.
The consultation relates mainly to discretionary commission agreements (DCA), in which dealerships could increase loan interest rates to earn higher commissions. This will decide which non-DCA arrangements and other factors should be included.
The Financing and Leasing Association, which represents lenders, has argued that the regulator’s estimate is overstated.
Even the bottom end of the £9-18 billion scale seemed too high, Adrian Dally, director of the association, told the Financial Times, questioning the regulator's calculations. "They haven’t shown the workings . . . We think it should be less than £9 billion."
The FCA said in August that individual compensation payouts were estimated to be less than £950 per person.
Lloyds, one of the biggest motor finance lenders, said at the time that its existing financial provisions had allowed for a range of scenarios and that there still remained a number of uncertainties that were still to be resolved, including further interventions, legal proceedings and complaints.
Banking and motor finance stocks, including Lloyds, Barclays, and Close Brothers, were down 0.8%, 1.5% and 1.65% respectively in early trading on Monday.