The U.K. Financial Conduct Authority said firms will not be able to process all the payment protection insurance, or PPI, complaints they received in the normal time frame due to a significant increase in inquiries and complaints that came in right before the Aug. 29 deadline.
The watchdog subsequently "challenged" banks to process the complaints "as quickly as is reasonable."
Financial firms could now take until summer 2020 to deliver a final response to some complaints, the regulator said, adding that it is important that complaints are "handled fairly and accurately."
The regulator said those eligible for compensation will receive interest on the amount they are due, typically to the tune of 8%, so they do not lose out financially from any delays. The interest will include the time it took for a firm to respond to a particular claim.
However, the FCA is urging vulnerable consumers, or those who have "particularly pressing financial difficulties," to explain their situation to their provider, who will then assess whether it is appropriate to expedite dealing with their complaint.
Customers who are unhappy with the final response from their provider have the option to take their complaint to the Financial Ombudsman Service, according to the FCA.