The group, which includes the Lloyds, Halifax and Bank of Scotland brands, said it “accepts that part of its complaint handling process led to a failure to provide fair outcomes for a significant number of customers” between May 2012 and May 2013.
As a result, members of the executive committee and some senior executives involved in handling PPI complaints have lost £2.65m in deferred bonuses.
Lloyds Banking Group added that while the an investigation by the Financial Conduct Authority (FCA) found the group did not act deliberately, it has reviewed all customer complaints it initially rejected during the period.
More than 90 per cent of customers have received payment and the remainder will be completed by the end of June.
Lord Blackwell, chairman of Lloyds Banking Group said the group accepted the FCA’s findings and apologised to customers who were affected.
He said: “Since 2011 the Group has made significant progress to strengthen the business.
“We are trying to get it right for our customers and to rebuild trust. But we do not get everything right. That means when we make mistakes, we will take responsibility for them. This is what we have done here.
“The board remains fully committed to ensure everyone at Lloyds Banking Group puts customers at the heart of our business.”
António Horta-Osório, group chief executive of Lloyds Banking Group, added: “In 2011 Lloyds led the industry in starting to redress customers who had been mis-sold PPI. We did this because we believed it was the right thing to do.
“When we began the remediation programme, it was thought this would cost the entire industry around £4.5bn. To date the industry has set aside over £26bn for PPI redress with the consequent impact on operational complexity and the significant administrative resources required.
“Whilst our intentions were right, we made mistakes in our handling of some PPI complaints. I am very sorry for this. We have been working hard with the FCA to ensure all customers receive appropriate redress. That process is now substantially complete.
“We remain fully committed to improving our operational procedures and ensuring we do the right thing for our customers.”