Lloyds Bank is writing to more than 7,000 customers who were mis-sold ‘low risk’ investment products which turned out to be high risk.
Times banking editor Katherine Griffiths says the bank may have to pay out £80 million in compensation over the sale of the products according to estimates from the bank’s own union, LTU.
It is understood that Lloyds examined 22,000 sales and is writing to 7,250 clients.
Ms Griffiths added: “Several banks and building societies have been fined over the issue but Lloyds may suffer a greater backlash as it was selling problematic structured products after the government was forced to bail it out with £20 billion of taxpayers’ money in 2008 when it pledged to improve its culture.”
An LTU spokesman said: “We believe a typical customer expected the product to provide a return of up to 42 per cent if the market rose.
“We have had a customer complain that the market did rise during this period, but they received a return of 0 per cent, contrary to their understanding from the marketing literature.”
Consumer campaigner Dominic Lindley commented: “Cautious savers in search of a decent return were lured by high street banks into investing money in poor value and complicated structured products.
“People were often lured by the prospect of high headline rates of return associated with the stock market, without the accompanying risks that go hand in hand with stock market investment.
“Believing that you can obtain high rewards without high risk is like believing in the tooth fairy. We need full transparency about the scope of the Lloyds redress exercise and how it is calculating compensation.”
A Lloyds spokesman said: “With some of our historic structured investment products we did not provide a small number of our customers with sufficient information before making their deposits.
“We apologise for these errors, which fall short of our aim to be the best bank for customers. We are proactively writing to all these customers to explain their options and will ensure that customers do not suffer any financial loss.”
The two products concerned are Acorn Market Linked Deposit and Protected Capital Solutions Funds. It has emerged that they were sold by Lloyds between 2008 and 2010.
The UK financial regulator – the Financial Conduct Authority – have said that the Acorn product “was in breach of providing fair, clear and not misleading promotions, because it provides the consumer with a misleading impression of the likely return”.
It is understood that in their letters to the customers Lloyds has said: “We have identified that we did not give you sufficient information to make an informed decision before you made your deposit.”
According to sources, the bank would not comment on what level of compensation might be offered.
Lloyds has just been fully re-privatised after a successful government trading plan sold off the taxpayers’ stake to institutional investors over a period of several months.
Royal Bank Of Scotland (RBS), the UK’s other bailed out bank, has also started compensating customers for mis-sold structure products