Lloyds fined for PPI payment delay by FSA
Lloyds Banking Group has been fined £4.3m for delaying compensation payments to customers over Payment Protection Insurance (PPI) mis-selling.
The Financial Services Authority (FSA) said that 140,000 customers did not receive their payments promptly.
Hundreds of thousands of people have received redress after they were mis-sold PPI they did not want or need.
Lloyds, which has apologised, is the first bank fined by the FSA specifically for delaying payments.
The bank said it had been surprised by the influx of claims last year.
"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," said a spokesman for the bank.
"We acknowledge that this led to some customers not being compensated on time and we apologise to those customers whose payments were delayed."'Six-month wait'
PPI was designed to cover loan repayments if the policyholder fell ill, had an accident or became jobless. But the policies were mis-sold on a massive scale to those who did not want or need them, or who would have been unable to make a claim.
Thousands of customers of Lloyds TSB, Lloyds TSB Scotland and Bank of Scotland joined other bank customers to make claims for compensation.
What is PPI
Payment protection insurance was designed to cover loan repayments if the policyholder became ill, had an accident or lost their job.
However, the policies were mis-sold on a huge scale to those who did not want or need it, or would have been unable to make a claim.
Lloyds Banking Group, which encompasses the three banks, sent letters to 582,206 people between May 2011 and March 2012, informing these customers that they would be paid compensation.
Rules from the City watchdog stipulate that this redress should be paid promptly, and Lloyds Banking Group aimed to pay out in less than 28 days.
But 140,209 had to wait longer than a month. The FSA said that 8,800 people had to wait more than six months. Some were not told why the delay occurred.
In addition, payments to nearly 25,000 customers "inadvertently dropped out of the process", the FSA said.
Other failings included:
- Copy and paste errors, including one which led to customers being paid the wrong amount in compensation
- Staff failing to process some payments, or processing the same batch twice
- Cheques being "stored inappropriately" in offices.
"The significant volume of complaints is a product of Lloyds Banking Group's own failings and the least customers can now expect is that redress, when it is due, will be paid promptly," said Tracey McDermott of the FSA.
"In short, Lloyds Banking Group'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 except a very small proportion of customers had now been paid in full, Lloyds said. Some of those received interest of 8% on the amount when there was a delay.Huge bill
Banks have collectively put aside more than £13bn to cover the cost of PPI compensation, making it arguably the largest mis-selling scandal in the UK.
Lloyds has employed thousands of people to process claims made by consumers directly, or through claims management companies.
Although it is the first to be fined for delays to payouts, others have been hit with penalties for the way complaints have been handled.
For example, the Co-op bank was fined £113,300 by the FSA in January for PPI complaints handling.
Lloyds would have faced a fine of more than £6m if it had not settled with the FSA at an early stage in the investigation.
In January, the UK's banks asked the FSA to set a deadline of April 2014 for all further claims for compensation.