The payouts were an increase on the 313 million handed out in August and brought the total bill for the industry to 16.9 billion pounds. Banks expect the bill for the mis-selling of payment protection insurance (PPI) to continue rising and have set aside more than 23 billion pounds in total.

Lloyds Banking Group (>> Lloyds Banking Group PLC) has set aside 11.3 billion, more than any other bank. Barclays (>> Barclays PLC), Royal Bank of Scotland (>> Royal Bank of Scotland Group plc) and HSBC (>> HSBC Holdings plc) are also paying out billions of pounds in compensation. The policies were supposed to protect borrowers against sickness or redundancy but were often sold to those who would be ineligible to claim.

(Reporting by Matt Scuffham; Editing by Steve Slater)