Lloyds Banking Group is setting aside an additional £800m for car finance compensation claims, bringing the total amount allocated by the bank for redress to nearly £2bn.
The company said that the number of eligible claims is expected to be higher than previously thought.
Millions of drivers who bought cars on finance with hidden commission payments between 2007 and 2024 may be eligible for redress.
The Financial Conduct Authority (FCA) published details of its proposed compensation scheme last week.
The FCA said payouts could be due on around 14 million unfair deals, averaging at about £700 each.
This could result in lenders paying out a total of £8.2bn in compensation.
The payouts are over commission arrangements between lenders and dealers, unfair contracts, and inaccurate information given to car buyers.
Lloyds said in a statement: “Based on the FCA proposals in their current form, the potential impact is at the adverse end of the range of previous expected outcomes.”
It said it was setting aside an additional £800m for redress based on “the increased likelihood of a higher number of historical cases… being eligible for redress”.
It said its “best estimate” of the total cost of redress was £1.95bn.
The proposed scheme would be free to access for consumers, although the interest they receive on redress will be much lower than that paid following the payment protection insurance (PPI) scandal.
That scandal cost Lloyds £22bn.
The FCA estimates that 44% of all motor finance agreements made since 2007 will be eligible for payouts.
But a ruling at the Supreme Court in August limited the breadth of these cases.
The FCA advises anyone who wants to make a complaint to get in touch with their lender or broker, and has this guidance on how to complain.
But the Finance and Leasing Association, the body that represents the lending industry, has said the FCA is “overcompensating”.