British lenders have been told by the Financial Conduct Authority (FCA) to ensure they are adequately prepared to meet the potential costs of customer complaints arising from its review into the motor finance industry.
The regulator began looking into potential overcharging in the industry in January, amid rising tensions between thousands of consumers and lenders over commission arrangements.
In a letter to bank bosses on Friday, the watchdog said lenders should assess their ability to meet potential future liablities resulting from any spike in customer complaints.
The watchdog said it planned to set out its next steps in September, but said that some companies were struggling to provide the data it needed and it was prepared to extend its review if necessary.
A judicial review started by Barclays (BARC.L) against an ombudsman decision on a motor finance complaint had also created uncertainty and could affect the timing of the review, the FCA added.
Lenders should continue to investigate complaints they receive in the meantime so they can be resolved quickly once the review is completed, the watchdog said.
Some lenders have already set aside cash to cover potential costs arising from claims. Britain's biggest domestic bank, Lloyds (LLOY.L), made a 450 million pound ($564 million) provision in results reported in February.
Analysts at RBC have previously estimated the total compensation bill for the industry could hit as much as 16 billion pounds, which would make it the costliest banking scandal since the widespread mis-selling of payment protection insurance (PPI).
($1 = 0.7978 pounds)
