Lloyds Banking Group has been hit with a £4.3m fine by the regulator for delayed payment protection insurance (PPI) redress payments to up to 140,000 customers.
The Financial Services Authority (FSA) fined the three brands Lloyds TSB Bank, Lloyds TSB Scotland and Bank of Scotland (LBG) for failings in their systems and controls that meant not all its customers were paid compensation within 28 days of sending decision letters.
Between May 2011 and March 2012, the group sent 582,206 letters to PPI complainants agreeing to pay redress to them, but only 140,209 received payment after 28 days.
Around 87,000 customers had to wait over 45 days before they were paid, 56,000 were kept waiting for more than 60 days, 29,000 for over 90 days and 8,800 for more than eight months.
Of the total, 24,589 payments inadvertently dropped out of the process and were only identified as a result of customers chasing payment over the phone and media attention.
When customers telephoned to enquire about the missing PPI redress, the group was unable to fast-track payments to customers, inform them when they would be made or explain the delay.
Tracey McDermott, director of enforcement and financial crime at the FSA, said: “The industry let customers down badly in relation to the sale of PPI.
“The significant volume of complaints is a product of LBG’s own failings and the least customers can now expect is that redress, when it is due, will be paid promptly.”
She added: “In short, LBG’s PPI redress payment systems fell well below the standard the FSA expects, and the size of this fine reflects how seriously we view these breaches. All regulated firms must treat those who complain fairly and that includes paying redress promptly when it is due.”
McDermott warned that the regulator will continue to monitor how firms handle PPI complaints and pay compensation.
During its investigation, the FSA found that until 9 March 2012, there was no control at all for the reconciliation of PPI payments at the banking group.
Lloyds has since completed a review of PPI redress payments and has paid interest at 8% per annum on the outstanding redress figure and has improved its processes to address the failings identified by the FSA.
In a statement, Lloyds said: “When we took the lead in 2011 to compensate customers on PPI, we had not fully anticipated the volume of complaints to be processed at the outset and experienced some administrative errors as we scaled up our systems and processes.
“We acknowledge that this led to some customers not being compensated on time and we apologise to those customers whose payments were delayed.”
The group confirmed that it has paid in full those customers who were due redress and that they have not been left financially disadvantaged.