Bank of Scotland hit with £3.5m fine

Bank of Scotland, part of Lloyds Banking Group, was today fined £3.5 million for failing to properly handle thousands of complaints, many from older customers, over savings products they had been sold.

It also faces a bill for £17 million for compensating customers.

It is the second such punishment by the Financial Services Authority which fined Royal Bank of Scotland and NatWest £2.8 million for similar offences in January.

Tracey McDermott, the FSA's acting director of enforcement and financial crime, said: "This is the second firm to be fined following the FSA's review of complaint handling in major banks.

"The review has led to many banks taking significant action to ensure they handle consumer complaints fairly. The FSA will continue to undertake further intrusive assessments of the banks that remain a concern and we will... take further regulatory action if improvements are not made."

Bank of Scotland received 2592 complaints from 2007 to 2009 about sales of its Collective Investment Plan, Personal Investment Plan, Guaranteed Growth Bond, ISA Investor and Guaranteed Investment Plan.

It rejected as many as 45% of the complaints, even though the FSA said many came from people with little or no experience of investment products. When the complaints went on to the Financial Ombudsman nearly half were overturned in customers' favour.

Bank of Scotland has already paid £2.4 million in compensation and expects to pay out a further £15 million to customers whose complaints are upheld after the review.