The fine by regulator, the Financial Conduct Authority (FCA), applies to Lloyds Bank, Bank of Scotland and The Mortgage Business, all part of Lloyds Banking Group.

In 2017 the bank revealed it had voluntarily begun a redress programme by proactively contacting customers who were potentially affected, refunding all broken payment arrangement fees, arrears management fees, interest accrued on the fees and litigation fees if applied unfairly or, in some circumstances, automatically.

The incidents took place between April 2011 and December 2015 and detrimentally affected around 526,000 customers, according to the regulator.

During this period, the FCA found that the banks’ systems and procedures for gathering information from borrowers in payment difficulties or arrears resulted in call handlers consistently failing to obtain adequate information to assess circumstances and affordability, creating a risk that customers were treated unfairly.

The regulator noted that the banks also employed a system that set a minimum percentage of a customer’s contractual monthly payment which a call handler was authorised to accept as a payment arrangement without obtaining further authority from a more senior colleague.

However, in practice, the system created a risk of inflexibility in approach, with the result that call handlers may have failed to negotiate appropriate payment arrangements for customers.

It added that these risks were exacerbated when, as part of a simplification programme, the banks lost a large number of personnel with mortgage collections and recoveries expertise, after which point nearly all of their mortgage arrears call handlers were new-to-role.

Addressing the situation

Some failings were identified by the banks as early as 2011 but the steps the banks took failed fully to rectify the issues.

During 2014 and 2015 the banks took a number of further steps to address the concerns raised by the FCA and on several occasions informed the FCA they were on track to implement those improvements.

However, the FCA said a further review in July 2015 found they had failed to make sufficient progress in addressing the problems and the banks were required to undertake a Skilled Person’s review.

The banks did not dispute the FCA’s findings and qualified for a 30% discount on the fine which would otherwise have been £91.5m.

A Lloyds Banking Group spokesperson, said: “We have contacted all customers who were affected between 2011 and 2015 to apologise and have already reimbursed all who were charged fees at the time.

“Customers do not need to take any action. We have since taken significant steps to enhance how we support mortgage customers experiencing financial difficulty, including investing in colleague training and procedures.”

Importance of treating customers fairly

FCA executive director of enforcement and market oversight, Mark Steward, highlighted that banks are required to treat customers fairly, even when they’re in financial difficulties.

He said: “By not sufficiently understanding their customers’ circumstances the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears, over several years,” he said.

“In some cases, customers were treated unfairly, including vulnerable customers. Customers should still pay what is owed, but banks are obliged to treat their customers fairly when making new payment arrangements.”

The regulator added that all customers affected should have been contacted already, but any customer who has not been contacted and thought they may have been affected should contact their bank.