Citizens Advice has warned that consumers could be thousands of pounds out of pocket and even more distrustful of banks due to Lloyds rejecting PPI claims first time.

An investigation by The Times newspaper found that staff at a Lloyds PPI complaints handling centre were advised that most customers would give up if the claim was not successful first time.

Lloyds has since terminated the contract of the company responsible for running the claims unit and is now retraining staff.

Gillian Guy, Citizens Advice’s chief executive, said the scale of PPI mis-selling was of pandemic proportions.

She said: “It is absolutely appalling that Lloyds has not taken its commitment seriously to compensate customers. As a result consumers yet again have lost out on thousands of pounds that was rightfully theirs.

“There is already widespread mistrust in banks and today’s revelation about Lloyds claims centre staff will only compound this further. We need a revolution in banking which puts a greater emphasis on customer service and delivering what consumers need, not unscrupulous practices that leave people out of pocket.”