LLOYDS BANKING GROUP has announced it is to strip several existing and former senior bankers of more than £1 million (€1.2 million) in bonuses over their roles in mis-selling payment protection insurance (PPI).

It will be the first time a British bank will exercise a “clawback” option regarding executive pay, according to the Daily Telegraph. The bank’s former chief executive, Eric Daniels, is amongst those facing the adjustment.

The scandal cost the state-owned bank billions last year – after the British High Court ruled the bank could not stop customers who felt they had been mis-sold the product from seeking compensation. Lloyds subsequently put €3.2 billion aside to cover likely payouts, Reuters reports.

What is PPI?

PPI is an insurance product that is intended to cover outstanding debts, typically in the form of a loan or an overdraft. It was often sold alongside loans to cover a customer’s repayments if they became ill or unemployed.

In the 2009/2010 financial year, the number of new PPI complaints from customers to the British financial services ombudsman rose by 58 per cent – with some customers saying they were unaware they even had the insurance.

That year, the ombudsman reported a high volume of complaints involving policies that were paid for with a single premium, where the up-front cost was added to an unsecured or second-charge loan. It also said it was continuing to see “a significant number of cases relating to payment protection insurance sold alongside credit cards”.

Royal Bank of Scotland

It is thought the move by Lloyds could spark similar behaviour by other bailed-out banks. Royal Bank of Scotland, which is 83 per cent owned by the taxpayer, was the second-largest mis-seller of PPI in the country.

Both banks are due to publish their 2011 results this week – and both are expected to be loss-making, the Guardian reports. Details of executive pay expected to follow within the month.