Lloyds Banking Group is to pay out £283 million in compensation to more than half a million of its mortgage customers.
After an investigation by the Financial Conduct Authority (FCA), Lloyds agreed that it did not do enough to support borrowers who were in financial difficulty and to ensure their repayment plans were affordable.
The bank – which includes the Bank of Scotland, Halifax and Lloyds Bank – will now refund 590,000 existing and former customers who were charged unfair arrears and missed payment fees when they fell behind with their mortgage payments between January 2009 and January 2016.
Interest will be paid on these refunds, while Lloyds will also offer further compensation for any financial difficulties caused by these charges, such as accounts going overdrawn or direct debit payments being missed.
Some affected borrowers who had started a litigation process against the bank will also receive a refund of their legal costs.
All affected customers will receive a letter from the bank stating how much will be refunded and how to claim for any other financial losses incurred.
Former Lloyds TSB mortgage customers who were transferred to TSB when the bank was split in September 2013 will be contacted by TSB regarding compensation payouts.
Jonathan Davidson, executive director of supervision - retail and authorisations at the FCA, says: “Ensuring fair treatment of customers, especially those in financial difficulties or who are vulnerable, is a key priority for the FCA. We continue to engage with Lloyds as it works to improve the way it treats customers in arrears.”
Stephen Noakes, group customer services director at Lloyds Banking Group, adds: “We apologise to customers who were affected and are proactively reimbursing them as quickly as possible. We have taken significant steps to address this situation and prevent it from happening again.”
‘Lloyds has two more years of the PPI storm to weather’
Separately, Lloyds Banking Group has today set aside a further £700 million for additional payment protection insurance (PPI) claims, as the number of claimants continues to outstrip the bank’s expectations.
Lloyds states in its half-year results that it now expects to pay out on 9,000 cases every week between now and the 29 August 2019 claims deadline.
Despite the extra costs relating to PPI and mortgage compensation, Lloyds posted half-year pre-tax profits of £2.5 billion - 4% higher than the same period last year.
Laith Khalaf, senior analyst at investment platform Hargreaves Lansdown, says: “Lloyds has two more years of the PPI storm to weather, after which a significant headwind to profitability will have dissipated.
“The board will be hoping that the provisions it has now made will see the bank through to the end of the claims period in 2019, while prudently expecting that there will still be some incremental charges along the way.”