In February 2013, the Financial Services Authority (FSA) fined Lloyds Banking Group £4,315,000 for delays in paying compensation to customers for mis-sold payment protection insurance (PPI). Once a PPI complaint is upheld in favour of the customer, the provider should pay the redress to the client within 28 days, yet this timescale was not met for over 140,000 customers of Lloyds TSB, Halifax and Bank of Scotland.

In spite of the millions of PPI policies mis-sold by the banks, this is the first time any of the ‘big four’ banking groups has been subject to FSA enforcement action over PPI.

Of the 582,206 cases where Lloyds agreed to pay PPI compensation between May 2011 and March 2012, 140,209, or 24%, involved waits of longer than 28 days. The FSA’s figures also reveal that 8,800 customers had to wait over six months for their funds.

The FSA has asserted that the failings occurred due to Lloyds not having an adequate process for preparing redress payments, their lack of forward planning, deficiencies in the knowledge and experience of staff, ineffective tracking of redress payments and ineffective risk management systems.

In addition to payment of the fine, Lloyds was required to compensate the customers affected by the delays by paying them interest on the redress amounts at 8% per annum.

Tracey McDermott, the FSA’s director of enforcement and financial crime, 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.

“PPI is an area of continuing focus for the FSA and we continue to monitor how firms handle complaints and pay redress.”

Lloyds blamed the sheer volume of PPI complaints it has received for the delays. A bank spokesman 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 and experienced some administrative errors as we scaled up our systems and processes. We acknowledge this led to some customers not being compensated on time and we apologise to them.

“It is important to note 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.”

It remains to be seen just how large a deterrent this fine will be. Martin Lewis, founder of the website MoneySavingExpert.com, who claims to have highlighted this issue back in October 2011, remarked:

“In truth this fine is paltry. £4.3 million is just 0.08% of its total PPI redress budget of £5.3bn, a relatively minor cost of scale – and a fraction of the money it was late to pay. So it’s questionable how big an impact it’ll have.”

Since Mr Lewis’s comments, Lloyds has been forced to increase its provision for mis-sold PPI to £6.8 billion.