Royal Bank of Scotland has warned it will take a hit of up to £900m after the number of last-minute PPI claims was “significantly higher than expected”.
Consumers had until 29 August to apply for compensation for mis-sold payment protection insurance (PPI).
RBS, which is still 62% owned by the government, said it expects to pay out between £600m and £900m to cover these claims in its third quarter results.
The bank had already set aside £5.3bn to the end of June, £4.9bn of which has been used.
The news comes after a good first half for the lender, with its highest half-year profits in more than a decade.
Attributable profits rose by 130% to £2bn and operating pre-tax profits were up 48% to £2.7bn.
It also delivered a £1.7bn special dividend payout for shareholders.
Around 64 million PPI policies were sold in the UK, routinely added to products such as store cards, credit cards or mortgages.
It was intended to protect people if they found themselves unable to keep up with their payments.
However, it was widely mis-sold: many customers did not know they had it or were pressured into buying it, while some of the policies were not suitable for the people they were sold to.
The Financial Conduct Authority said last month that compensation for PPI had so far cost the financial services industry £36bn.