Following discussions with the FCA, Lloyds acknowledged that when customers fell into arrears, the bank did not always do enough to understand customers’ circumstances to be confident that their arrears payment plans were affordable and sustainable.

Lloyds has, therefore, committed to refund all fees charged to customers for arrears management and broken payment arrangements from 1st January 2009 to January 2016.

The bank has estimated that approximately 590,000 customers will receive redress payments totalling around £283m.

Lloyds will also offer payments for potential distress and inconvenience, and consequential loss which customers may have experienced as a result of not being able to keep up with unsustainable repayment plans.

“Ensuring fair treatment of customers – especially those in financial difficulties or who are vulnerable – is a key priority for the FCA,” said Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA.

“We continue to engage with Lloyds as it works to improve the way it treats customers in arrears.”

The redress scheme will refund the accrued interest on all fees up to the remediation date or – where customers have already paid the fees – the date when the fees were paid.

Lloyds will also pay an additional 8% interest for customers deprived of funds. 

The bank will write to all affected customers to explain the refund they will receive and to prompt them to make a claim for any distress and inconvenience they may have experienced