Shares in UK lenders surged on Monday after a favourable supreme court ruling significantly slashed the anticipated bill for companies engulfed in the car finance scandal.

The specialist lender Close Brothers, which is the most exposed to the scandal, jumped as much as 27% at the start of trading, while the UK’s biggest motor loan provider, Lloyds Banking Group, rose by 5.5%. Shares in Barclays, which no longer provides car finance but is dealing with the fallout for the remaining loans on its books, rose by 1.1%. Shares in FirstRand, one of the lenders involved in the supreme court case, jumped by 4.8%.

The motor finance industry – which ranges from big banks such as Lloyds and Santander UK to specialist lenders and the finance arms of carmakers such as Ford and BMW – dodged a collective £44bn compensation bill after the supreme court broadly sided with lenders in a ruling on Friday.

The Financial Conduct Authority (FCA) subsequently announced plans for a much smaller redress scheme, which will go out for consultation by October. It is expected to cost lenders between £9bn and £18bn.

The scheme will help draw a line under the car finance scandal, compensating millions of drivers who were overcharged as a result of controversial commission arrangements between lenders and car dealers as far back as 2007.

The question now is the scope of the scheme: whether it will be limited to discretionary commission arrangements (DCAs), or broadened to include other unfair or egregious arrangements highlighted in the supreme court case.

Lloyds, which had previously set aside £1.2bn to cover compensation payments, did not announce any further provisions on Monday, and said that the “ultimate impact” on the bank would depend on a “number of factors”. That included the outcome of the consultation over the FCA compensation scheme, any “further interventions” including by regulators, as well as “broader implications of the judgment, including legal proceedings and complaints”.

However, Lloyds, which is the largest provider of motor loans in the UK through its Black Horse division, said any additional money put aside for compensation “is unlikely to be material in the context of the group”.

“The provision will continue to be reviewed for any further information that becomes available, with an update provided as and when necessary,” Lloyds added.

Close Brothers, which was one of two lenders who appealed against their case in the supreme court, has already put aside £165m for the scandal, cancelled dividends and announced plans to sell its asset management business to strengthen its finances.

It said on Monday: “We look forward to engaging with the FCA in respect of the consultation.”

South Africa’s FirstRand, which operates as MotoNovo in the UK, said it may put aside more cash to cover compensation payouts, which could push earnings growth to the lower end of its forecasts. Those results will be released on 11 September.

Meanwhile, the Financing and Leasing Association (FLA) – the lobby group which represents the car loan industry – said it could challenge the FCA’s compensation scheme in court if it ends up handing “disproportionate” payouts to drivers.

“I’m sure both our side, like the claimant side, will have their red lines,” the FLA’s head of motor finance, Adrian Dally,said.

Dally said the industry wanted to see a scheme focused solely on compensation consumers for losses linked to DCAs, which were banned in 2021, and became the focus of a regulatory investigation last year.

However, that would mean limiting compensation to about £2.2bn: a figure based on the £165m a year that customers were believed to have been overcharged between 2007 and 2020, before the ban came into force.

“If a scheme was in that ballpark, then I think we’ll consider that a reasonable scheme,” Dally said. “But if you have numbers that go beyond that, then we would have to think very seriously about that.”

The FLA also pushed back against redress plans that included contracts that were almost 20 years old. “We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best. We will be interested to see how the FCA addresses this point in its consultation.”

The regulator’s chief executive, Nikhil Rathi, told Today on BBC Radio 4 on Monday: “There’s some detail to be worked out, and we’ll have to look at this on a case-by-case basis … but we think we have enough now to put in place a scheme. And of course, what we have found in our review is that many firms broke the law and our rules around disclosure: they didn’t disclose commissions. And so in those cases, where consumers have lost out, it’s important that there’s appropriate compensation.”

Motorists have been warned they are likely to get less than £950 for a claim. The FCA said there was no need to use a claims firm, adding that that any redress scheme would be free for consumers to use. The regulator said anyone concerned should contact their lender in the first instance.