Lloyds Banking Group has paid out £13.6million to around 350,000 customers after a regulatory probe into how it renewed home insurance policies.
Lloyds, plus sister banks Halifax and Bank of Scotland, told 2.7million customers between 2009 and 2017 that their renewal price was competitive.
But the banks did not check this was right, according to the Financial Conduct Authority (FCA) watchdog.
The FCA said this meant "serious consumer harm", as most customers were charged more when renewing.
Over the same period the banks sent letters to around 500,000 home insurance customers saying they would get a renewal discount.
However, no such discount was ever given, or intended to be.
The bank has now paid more than £13.6m to approximately 350,000 customers.
These customers do not need to do anything to get the payment.
The FCA has also fined Lloyds Banking Group £90.6million over the issues.
A Lloyds statement said this fine "reflects LBG’s position as one of the UK’s largest home insurers, as well as the period of time over which the errors persisted, it does not directly relate to customer detriment".
A Lloyds spokesperson said: “We’re sorry that we got this wrong. We’ve written and made payment to those customers affected by the discount issue and they don’t need to take any further action.
"We thank the FCA for bringing this matter to our attention and since then we’ve made significant improvements to our processes and how we communicate with customers.”
FCA executive director of enforcement and market oversight Mark Steward said: "Firms must ensure their communications with customers are clear, fair and not misleading.
"Millions of customers ended up receiving renewal letters that claimed customers were being quoted a competitive price which was unsubstantiated and risked serious consumer harm."
In February Lloyds paid out £975,000 after an investigation found the bank sent wrong information to a number of PPI account holders.
Competition watchdog the CMA said the bank breached pay-out rules by sending out incorrect PPI statements to 8,800 customers.
Under current rules, PPI providers are legally required to send customers annual reminders that set out the cost of their policy, the type of cover they have and their right to cancel.
However, the CMA said 8,800 people were sent incorrect information in annual reminders about PPI on their mortgage policies.
