Lloyds Banking Group (LBG) is to pay 200,000 customers around £6 million for denying them seven years of interest payments.
LBG – Lloyds, Halifax and Bank Of Scotland – has admitted an administrative error failed to notify the customers that the banks had slashed interest rates on a range of savings accounts, starting in 2012.
The failure cost account holders millions in lost interest they would have received if they had moved their savings to another account.
It is believed the error might also mean Lloyds breached Financial Conduct Authority (FCA) rules about maintaining transparent and fair banking practices in the UK.
It is understood that LBG has already reported the facts to the regulator.
The compensation, believed to be around £30 a head, will be paid to both current and former customers of the banks. Anyone who has left the bank or moved home will be traced.
It will be calculated to put each customer in the position they would have found themselves in if the interest rate had not changed and will be based on the amount of money they had in their accounts at the time of the error.
The banks have been sending out letters to the affected customers, apologising for what happened and advising they will receive compensation.
The letter reads: “We’re making a payment to you. We didn’t send you some letters about changes to your savings account when we should have.
“If we had sent this information to you at the time, you may have chosen to put your money in a different savings account. I’m sorry this happened.”
An LBG spokesman said: “We have identified that some of our customers have received delayed information relating to their account with us.
“We are contacting customers to apologize and make them aware of any missed information.
“We will, where appropriate, offer redress. Customers do not need to take any action as anyone affected will be contacted.”
The rules contained in the FCA handbook require banks to ‘provide … a banking customer appropriate information about a retail banking service … in good time’.
It goes on to say: ‘a firm should provide notice of the expiry of the application of that rate of interest to the banking customer … within a reasonable period before that rate of interest ceases to apply’.
Failure to comply with the guidance could result in supervisory or enforcement action that includes sanctions or fines.