Bank of Scotland, part of the Lloyds Banking Group, has been fined £4.2m by the Financial Services Authority (FSA) for failing to keep accurate records of the mortgage payments of 250,000 Halifax customers.
The blunder, which persisted from 2004 to 2011, was the result of a botched integration of the bank's mortgage records system and its mortgage offer letters system, compounded by failures connected with two further processes where manual updates were not always carried out, according to the FSA.
In a statement, the FSA added: "While monitoring a consumer forum website, the FSA found a number of customers complaining that they had been wrongly excluded from the programme and had not received goodwill payments."
"As well as excluding this group, the problem was compounded when Bank of Scotland incorrectly contacted 33,700 customers, who should never have been included in the programme, and mistakenly made goodwill payments totalling £20.4m to 22,700 of them."
Tracey McDermott, the FSA's director of enforcement and financial crime, said: "These mistakes stemmed from the fact that Bank of Scotland had an inadequate mortgage records system meaning it could not identify which of those 250,000 customers were subject to a cap on their standard variable rate."
She added: "This breach is particularly serious because the inaccuracies built up over a period of seven years. There was no structure in place to identify errors as they occurred and no checking procedures thereafter."