Banks and credit card issuers are facing a bill of about £1.3 billion ($2 billion) to compensate victims of the UK financial services industry's latest mis-selling scandal.
Regulators are to unveil on Thursday a plan under which 16 financial institutions will redress consumers who were mis-sold protection for identity theft and credit card fraud, said people close to the scheme.
The lenders are on the hook for payouts after they referred customers to CPP, a specialist "life assistance" company that regulators have already fined a record £10.5 million for mis-selling.
Barclays is likely to be facing the biggest hit because of its dominant share of the credit card market. The saga will be an embarrassment for Barclays' chief executive Antony Jenkins, who was chief executive of Barclaycard for several years while the mis-selling was taking place. It comes as Mr Jenkins is midway through a planned £5.8 billion rights issue.
If credit card market shares were taken as a proxy for the likely mis-selling compensation, Barclays could be facing a bill of more than £300 million, analysts said. MBNA, HSBC and Santander UK are likely to be the other main institutions with the next highest payouts.
More from the Financial Times:
CPP faces record mis-selling fine
Lloyds admits 'issues' over handling of PPI claims
UK consumer finance complaints soar 179%
The Financial Conduct Authority has said consumers may be entitled to compensation if they were "given misleading or unclear information", for example if sales staff exaggerated the risk of identity theft.
"This was a product that no one needed to buy," said one bank insider. "It was always totally unnecessary because any losses from identity theft are borne by the bank not the individual anyway."
This is the third mis-selling scandal to hit banks in recent times. But the sums involved in the latest affair are small compared with the payment protection insurance debacle, for which banks have now set aside close to £15bn to fund compensation.
Banks are also having to compensate small business customers who were sold inappropriate interest rate hedges.
CPP has already said it would compensate customers who bought mis-sold policies from it directly. The new scheme has been set up also to cover those who were referred to it by banks or card issuers.
The financial services companies involved have been discussing the scheme with the FSA since last November. Details were first reported by Sky News. All parties declined to comment.