The UK's financial watchdog has hit high street lender TSB with a £10.9 million fine for failing to ensure that customers in arrears on mortgage, loan and credit card repayments were treated fairly.

The Financial Conduct Authority (FCA) said the bank, which is registered in Scotland and owned by Spanish giant Sabadell, lacked suitable systems and controls that created a "real risk that repayment plans were not realistic". This increased the uncertainty and stress for customers, particularly the vulnerable.

Between June 2014 and March 2020, the FCA said TSB staff were not sufficiently trained to understand customers' financial circumstances. In addition, incentive schemes could have encouraged them to prioritise the number of payment plans agreed, rather than ensuring they were affordable.

The extent of the failings were identified by an independent review ordered by the FCA in July 2020. Although TSB was aware of potential problems with its collections and recoveries as early as December 2016, the FCA noted that the bank did not take effective action to fully redress them until the review in 2020.

"If you get into difficulty, you hope for – and we expect – fair treatment so a stressful situation isn’t made worse," said Therese Chambers, joint executive director of enforcement and market oversight at the FCA.

"TSB’s woeful systems and controls exposed its customers to risk of harm and meant it missed opportunity after opportunity to do the right thing. While it did take action, it took us instigating a review before it acted effectively to address all the issues."

TSB has since paid £99.9m in redress to 232,849 customers affected. It has also implemented a programme to address the issues at a cost of £105m.

The FCA noted that the fine could have come in at more than £15.5m, but by agreeing to resolve matters TSB qualified for a 30% discount.