The Financial Services Authority (FSA) has fined three Lloyds Banking Group firms £4.3m for system failings, that resulted in up to 140,000 customers receiving delayed payment protection insurance (PPI) redress.
The three firms - Lloyds TSB Bank, Lloyds TSB Scotland and Bank of Scotland - sent 582,206 decision letters to PPI complainants agreeing to pay redress to them between May 2011 and March 2012.
LBG aimed to make payment within 28 days of these decision letters - as per FSA rules - but a series of failures meant not all were paid within the time frame.
Approximately 87,000 customers were made to wait more than 45 days; 56,000 more than 60 days; 29,000 over 90 days; and 8,800 did not receive redress for 6 months; nearly a quarter -140,209 customers - received payment after 28 days.
According to the FSA, out of the total claimants 24,589 payments inadvertently dropped out of the process and LBG had to take action to ensure the payments were made.
The payments were identified as a result of customers calling to chase payment and media attention.
The City watchdog reported that when customers telephoned LBG to enquire about the non-receipt of expected PPI redress payments, deficiencies in its process meant payments were not fast-tracked and customers were not informed when payment would be made or why it had been delayed.
LBG agreed to settle with the FSA at an early stage of the investigation and therefore qualified for a 30% discount. Without the discount LBG would have been fined £6,164,327.
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.
"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."
She added PPI was an area of continuing focus for the FSA as it continued to monitor how firms handled complaints and paid redress.
The FSA's investigation found; LBG failed to establish an adequate process and had systems unable to process large volumes; LBG's staff did not have the collective knowledge or experience; ineffective tracking of PPI redress payments with no control at all until 9 March 2012; failings to monitor payments with insufficient management information; and ineffective approach to risk management when preparing redress payments.
LBG has since completed a comprehensive review of PPI redress payments to ensure all customers due PPI redress have been paid the correct amount and compensated for any delay.
LBG has paid interest at 8% per annum on the outstanding redress figure where appropriate and has improved its processes to address the failings identified by the FSA.
