Almost 600,000 Lloyds, Halifax and Bank of Scotland customers who fell behind on their mortgage payments are in line for a payout totalling £283 million.

The Financial Conduct Authority today announced that Lloyds Banking Group will refunds fees, some legal costs and also offer compensation to customers who were unfairly charged between January 2009 and January 2016.

If customers fall behind on their monthly mortgage payments, they're given an individual payment plan following an assessment of their finances to check they can meet the payments.

Lloyds Banking Group has admitted such assessments were not always consistent, so some customers may have been wrongly charged.

The regulator says Lloyds Banking Group – whose brands include Halifax and Bank of Scotland – didn't always do enough to understand customers' circumstances to ensure their arrears payment plans were affordable and sustainable. 

What will Lloyds refund?

The group has agreed to refund:

  • All fees charged to customers for arrears management between 1 January 2009 and January 2016
  • All fees for broken payment arrangements (where someone failed to keep up with their repayment plan) between 1 January 2009 and January 2016
  • Any unfair legal costs that were applied during this period
  • Compensation for distress and inconvenience
  • Consequential losses such as any extra bank charges as a result of not being able to keep up with the repayments
  • Any interest if applicable

Lloyds will write to all affected customers to explain the refund they will receive and to ask them to make a claim for any distress, inconvenience and consequential losses.

Customers are expected to receive an average £350, and Lloyds hopes to make the payments by the end of the year.

Lloyds, Halifax and Bank of Scotland to pay customers £283 million compensation over mortgage arrears
Customers are expected to receive an average £350

How do I get my money back?

Lloyds has said any affected customers can expect to receive a letter soon – so you shouldn't need to do anything to claim.

If you still have a mortgage with one of Lloyds Banking Group's banks, the payout will be put as a credit on your account. If you're no longer with one of the banks you'll be sent a cheque.

If you don't receive a letter but think you're owed cash you can call Lloyds, Halifax or Bank of Scotland.

What does the regulator say?

The Financial Conduct Authority (FCA) uncovered the problems during an industry-wide review in 2014 looking at how customers are treated. It carried out further investigations and has been working with Lloyds to put the repayment scheme in place.

Jonathan Davidson, executive director of supervision – retail and authorisations, said: "Ensuring fair treatment of customers, especially those in financial difficulties or who are vulnerable, is a key priority for the FCA. We continue to engage with Lloyds as it works to improve the way it treats customers in arrears."

It's not yet clear whether the FCA will fine or sanction Lloyds over this.

Lloyds expects to spend £340 million fixing the problems

The banking group estimates it will spend a further £57 million sorting the problem, on top of the £283 million it is expecting to pay to customers.

Stephen Noakes, group customer services director, said: "We apologise to customers who were affected and are proactively reimbursing them as quickly as possible.

"We have taken significant steps to address this situation and prevent it from happening again. These measures include ensuring consistency of in-depth income and expenditure reviews, colleague training, strengthening management controls and reviewing fee charging."

It said the problem affected fewer than 6% of the group's mortgage customers per year.