PPI compensation: Lloyds fined £4.3m

Lloyds Banking Group has been fined £4.3m for delays in compensation payments to up to 140,000 customers who were mis-sold payment protection insurance.

The Financial Services Authority said failures in the bank's systems and controls had meant that some customers had waited more than six months to be compensated after being told that they had a valid claim.

The bank has attracted a large number of complaints from customers who say they were sold PPI policies to cover personal loans in the event of sickness or unemployment, which they could never have claimed on.

It has so far put aside more than £5bn to compensate those who bought useless products, but the regulator said it had failed to establish an adequate process for preparing compensation payments to send to PPI complainants who banked with Lloyds TSB, Lloyds TSB Scotland and Bank of Scotland.

Staff engaged in the process lacked knowledge and experience, and there was ineffective tracking of payments.

The regulator's rules state that redress must be paid promptly, and Lloyds Banking Group has its own 28-day target for payment after sending decision letters to customers.

Between May 2011 and March 2012 it sent 582,206 decision letters to PPI complainants agreeing to pay compensation. However, 140,209 customers – almost a quarter – waited longer than four weeks to receive their money.

The FSA said around 87,000 customers waited more than 45 days, 56,000 more than 60 days, 29,000 more than 90 days and 8,800 had their payments delayed by at least six months.

Of the total, 24,589 payments inadvertently dropped out of the process and were only identified as a result of customers calling to chase payment, and by media attention.

The FSA said that, to compound the problem, when customers called the bank to inquire about expected payments, deficiencies in its processes meant it could not fast-track those payments, or tell them when to expect the money, or why it had been delayed.

Tracey McDermott, the FSA's director of enforcement and financial crime, said the industry had let customers down badly in relation to the sale of PPI.

"The significant volume of complaints is a product of LBG's [Lloyds Banking Group's] own failings and the least customers can now expect is that redress, when it is due, will be paid promptly.

"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."

Lloyds has since completed a comprehensive review of PPI compensation payments to ensure that all customers due money have received it and been compensated for any delay.

Lloyds said in a statement: "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.

"It is important to note that almost all customers who were due redress during the review period have now been paid in full and, as the FSA notes, we have taken steps to ensure customers have not been financially disadvantaged."

The bank now has 6,000 staff employed to deal with PPI claims.

The FSA is tracking the level of redress paid to PPI complainants; the latest figures show that a total of £8.4bn has been repaid by the industry since January 2011.