Image copyright Reuters

Lloyds Banking Group and Barclays have both announced they are facing billions of pounds in new costs to cover a late rush of claims for the mis-selling of Payment Protection Insurance (PPI).

Lloyds said it faced a bill of £1.2bn-£1.8bn after "a significant spike" in claims in the run-up to the final deadline of 29 August.

Barclays said it faced new costs of £1.2bn-£1.6bn.

Both banks have already paid out huge sums to cover compensation claims.

PPI was designed to cover loan repayments if borrowers fell ill or lost their job, but many were sold to people who did not want or need them.

Banks and other providers sold millions of the policies, mainly between 1990 and 2010.

Last month's final deadline for PPI compensation prompted a surge of last-minute claims from consumers.

Image copyright PA Media Image caption An FCA ad campaign featuring an image of Arnold Schwarzenegger urged consumers to make claims before the deadline

Lloyds said that at the time of its half-year results in July, it had assumed that PPI claims would continue to come in at the rate of 190,000 a week.

However, in the run-up to the final deadline, it said it received 600,000 to 800,000 a week.

"Including claims by the Official Receiver, the group now estimates that it will need to make an incremental charge for PPI claims, in addition to the provisions to 30 June 2019, in the range of £1.2bn to £1.8bn in its Q3 interim management statement," the bank said.

By May, Lloyds had set aside some £19.5bn to cover PPI claims, but this bill will have now risen.

Barclays, which had already set aside more than £9.2bn, said it too had seen a "higher than expected volume of PPI-related claims" during August.

Other UK banks have been hit by the last-minute rush for compensation.

Last week, RBS said it expected to take an additional charge of between £600m and £900m, while shares in CYBG fell sharply after it warned it would take a hit of up to £450m.

Estimates suggest that the last-minute surge in claims means that banks will ultimately have set aside well over £50bn in total to pay for the PPI scandal.

In February this year, Lloyds said it planned to buy back £1.75bn of its shares this year.

However, given the "uncertainty around the final outcome for PPI", Lloyds said it had "decided to suspend the remainder of the 2019 buyback programme, with [around] £600m of the up to £1.75bn programme expected to be unused at mid-September".