The fine, which is the largest ever retail penalty, reflected the “significant number of consumer complaints which were unfairly rejected”.
This is just the latest fine against the taxpayer backed group, as just last year Lloyds was fined £218m for rigging Libor rates.
Georgina Philippou, acting director of enforcement and market oversight at the FCA said: “PPI complaint handling is a high priority issue for the FCA. If trust in financial services is going to be restored following the widespread mis-selling of PPI, then customers need to be confident that their complaints will be treated fairly.
“The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds.
“Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable.”
The regulator said customers were wrongly told their complaints were fully investigated” with “all available evidence being taken into account” when this was not the case.
Lloyds settled at an early stage of the investigation, meaning they got a 30% discount from what would have been a £168m fine.