Financial regulator the Financial Conduct Authority (FCA) has fined Lloyds Banking Group £117,430,600 for issues regarding its handling of payment protection insurance (PPI) complaints.

The fine, which is the largest the FCA has ever imposed for retail conduct failings, includes Bank of Scotland and vehicle finance provider Black Horse Finance, which are part of the Group, as well as Lloyds Bank.

The central issue was that Lloyds complaint handlers were relying on an ‘over-riding principle’ that its PPI sales process had been compliant and robust, and that this assumption was clouding their judgement on individual complaints – in some cases customers’ personal experiences of the sale were dismissed, or complaints were not fully investigated. In its Final Notice, the FCA has published a copy of an internal Lloyds document from 2012, which makes reference to “embedding

[an] innocent until proven guilty culture”. Firms are not entitled to take this stance when investigating regulatory complaints. This echoes the June 2013 report by Times undercover journalist James Dean, who was told to work on the assumption that Lloyds had not mis-sold PPI when he obtained a role in the bank’s complaints handling unit.

The FCA also believes that the bank’s policy on contacting customers was inadequate. A number of complaints were rejected after complaint handlers tried without success to contact customers and obtain their recollection of events. Complaint handlers were not provided with recordings of sales calls. The FCA Notice says that customers were generally contacted at their preferred times, but back in 2013, the Times investigation alleged staff were encouraged to call customers during normal office hours in the hope they would not be available.

The FCA cites the example of Ms B, who complained that PPI had been added to her loan without her consent. After being unable to contact her by telephone on three occasions, the complaints handler closed the complaint and wrote:

“I have not found any evidence to support her allegation. I also believe that as the sales process was robust that the customer would have had the cover explained to her fully, been informed that it was optional and her consent would have been required in order to sell her the policy.”

Complaint handlers were also not informed of certain issues relating to the way Lloyds sold PPI. These included the fact that some customers had PPI added without their explicit consent. The Times went further, and said that complaint handlers were made aware that some salespeople had ticked the ‘yes to PPI’ box on application forms, but that they were still to regard the presence of this tick as definitive evidence that the customer wanted PPI.

The FCA decided to investigate Lloyds when it became aware that their uphold rate on PPI complaints had fallen significantly – from 82% in March 2012 to 26% in October 2012. The Times investigation revealed that Lloyds management were telling their complaint handlers that the majority of customers would not take the matter further if the bank rejected their complaint.

Lloyds will now re-assess each of the 1.2 million affected complaints, covering the period March 2012 to May 2013. It has set aside £710 million to cover compensation for these complaints, part of its overall PPI compensation reserve of more than £12 billion. The process of re-assessing the complaints and paying the compensation will be overseen by a Skilled Person appointed by the FCA.

António Horta-Osório, chief executive of Lloyds Banking Group, said:

“In 2011 Lloyds led the industry in starting to redress customers who had been mis-sold PPI”.

However, the relevant period for this fine did not commence until March 2012.

He added:

“Whilst our intentions were right, we made mistakes in our handling of some PPI complaints. I am very sorry for this.”

Mr Horta-Osorio will forfeit £350,000 of his bonus as a result of the fine, and his fellow executives will forfeit a further £2.3 million.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.