A whopping £516 million was paid out to victims of payment protection insurance (PPI) mis-selling in September, according to latest industry figures.

It brings the total recorded amount paid out for mis-sold PPI since January 2011 to more than £7 billion, according to the City watchdog, the Financial Services Authority.

The true figure will be much higher as the data is two months out of date, while the final bill will be significantly larger still as lenders have set aside over £12 billion to repay victims of the scandal.

Lloyds Banking Group, RBS, Barclays and HSBC were all forced to allocate a combined £2.3 billion extra for compensation over the past month due to the deluge of claims from irate customers who had been flogged worthless cover.

There has been a huge jump in compensation payouts for PPI, which covers loan or credit card payments when people cannot work, since the British Bankers' Association trade body ended a legal battle in May 2011 which attempted to block the FSA's rules on compensation.

These rules force banks to review past sales of PPI and contact mis-sold customers to offer money back, even to borrowers who have never complained.

The FSA's figures come from the 24 firms responsible for 96% of complaints about PPI sales last year.