Compensation from payment protection insurance (PPI) is expected to top £10 billion.
The cost to banks is likely to be even higher as the admionistration and staff costs rise as the banks try and sort out the genuine claims from thousands of others sent in by PPI claims management companies.
The main UK banks affected by the PPI scandal have or are expected to increase the provision for PPI compensation in their interim financial results.
Last week, Lloyds Banking Group increased the amount set aside for compensation to £4.3 billion. Lloyds Banking Group has the highest total liability of all of the banks.
HSBC announced their results this morning which included an additional £340 million in PPI compensation taking its total PPI liabilitt to £1 billion..
Last week, Barclays also increased its PPI provision and the Royal Bank of Scotland, (RBS) is expected to do likewise when it announces its interim financial results on Friday.
The total for the “big five” UK banks has now reached £8.8 billion and more claims are being received by all of the banks every day.
Consumer group, Which? has been at the forefront of the campaign to encourage consumers mis-sold PPI to bypass claims management companies who take an average commission of around 15 per cent.
Which? chief executive Peter Vicary-Smith said: "These latest figures from the banks show that PPI is now on course to become the biggest consumer financial scandal of all time, exceeding pensions mis-selling and the endowment mortgage scandal.
"The banks must make it straightforward for people to reclaim PPI themselves, for free, so they don't resort to expensive and unnecessary Claims Management Companies (CMCs).
"We now need the Government to raise its game too, and toughen up the regulation of unscrupulous CMCs who are exploiting consumers who just want to claim back what is rightfully theirs."
The Financial Services Authority (FSA) reports that £4.8bn was paid out to consumers mis-sold PPI between the beginning 2011 and the end of May 2012. This means that around £5bn is yet to be claimed
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