Media playback is unsupported on your device Media caption The BBC's Simon Gompertz explains the latest revelations

Lloyds has admitted shortcomings in the handling of complaints at a centre set up to deal with PPI mis-selling.

It comes as an undercover reporter at the Times said staff at one of the bank's complaints handling centres had been taught to "play the system".

The reporter said he was told to ignore possible fraud by Lloyds salesmen and that most complainants would give up if rejected the first time.

Lloyds said it had identified issues at the centre independently.

It added that it believed that some of the comments made to the reporter were "isolated" and were now being addressed.

The Times reporter said he was told that a job as a PPI complaint handler could be "morally difficult" and that they should effectively turn a blind eye to the risk of fraud.

Payment protection insurance (PPI) was designed to cover loan repayments for policyholders who became ill, had an accident or lost their jobs.

Yet it was mis-sold by banks on a massive scale to customers who did not want or need it.

Retraining

It rather begs the question why it has taken many weeks for Lloyds to get to the bottom of what was going on and take action.

"Earlier this year we became aware of issues at a PPI complaints handling centre called Royal Mint Court in central London," Lloyds said in a statement.

"This site was operated for us by a third party supplier, Deloitte. Following further investigations we took immediate action, and in May concluded our contract with Deloitte and moved to a new supplier.

"Some of the comments made by trainers to the Times reporter are not endorsed by Lloyds Banking Group and we believe they do not reflect our high training standards or our policies," it continued.

"We believe the comments to be isolated and they are now being addressed. Following the discovery of these issues and under the guidance of a new supplier the employees are currently undergoing retraining in line with our policies and procedures."

To date Lloyds has paid out £4.3bn to 1.3 million customers who were victims of the PPI mis-selling.

A spokeswoman for Deloitte said: "[Our] role was to process PPI mis-selling complaints from Lloyds Banking Group customers who were sold policies by the bank, in accordance with the bank's policies and procedures.

Media playback is unsupported on your device Media caption Times reporter James Dean explains what he discovered while undercover

"In processing claims in accordance with those bank policies and procedures, we provided a high level of service throughout the period."

She added that the contract came to an end in May as Lloyds moved from three contractors to two - but that this was not the result of any shortcomings in the handling centre.

Deloitte also does some PPI work for Barclays, but a spokesman for the bank said that this involved back-office administrative tasks, rather than making decisions on PPI claims.

The Barclays spokesman added that there had been a review of Deloitte's work, but no problems had been identified.

'Clear warning sign'

BBC business editor Robert Peston said the allegations were "massively embarrassing" for Lloyds - especially as it had come in a week when MPs and Lords are finalising a report on how to improve standards in banking.

A spokesperson for the Financial Conduct Authority (FCA), which regulates banks, said: "We expect all firms to comply with our rules and treat their customers fairly.

What is PPI Payment protection insurance was designed to cover loan repayments if the policyholder became ill, had an accident or lost their job. However, the policies were mis-sold on a huge scale to those who did not want or need it, or would have been unable to make a claim.

"Firms know that PPI complaints must be thoroughly investigated and that appropriate action, where required, is taken promptly."

The spokesperson added that the FCA was carrying out reviews of firms' PPI complaint handling procedures, and would be publishing its findings later in the summer.

The Times alleges that the handling centre tried to circumvent claims management companies (CMCs), which try to win compensation for individuals for a fee.

Earlier this year, one CMC said that Lloyds customers who were making claims faced a long wait.

"The reality is that far too many Lloyds customers who were mis-sold PPI are being confronted with a monolithic and inefficient bureaucracy when they approach the bank for redress," said Craig Lowther, managing director of the PPI claims management company MoneyBoomerang, in February.

"Despite assigning thousands of staff and millions of pounds just to handle a mountain of outstanding PPI claims, the bank clearly isn't keeping up."

In February, Lloyds was fined £4.3m by the regulator for delaying PPI compensation payments to customers.

Claims that remain in dispute between customers and the bank can be taken to the Financial Ombudsman Service by the claimant.

Latest figures from the ombudsman showed that it received 42,195 PPI claims relating to Lloyds in the second half of last year. This was the highest number of any bank or building society. The ombudsman found in the customers' favour in 86% of cases.

Black Horse Limited, a Lloyds subsidiary, accounted for another 5,888 complaints about PPI, of which 97% were ruled in the customer's favour by the ombudsman.

Some 60% of cases dealt with at the Royal Mint Court found in favour of customers, Lloyds said.

Investigations

Major banks have set aside £15bn to cover potential PPI compensation costs.

Lloyds was the first bank to agree to start paying PPI compensation in 2011, with other banks later following suit.

But Lloyds chief executive Antonio Horta-Osorio later suggested that the bank was the victim of spurious claims. He said that one in four claims related to people who did not have a PPI policy with the bank in the first place, but processing these claims still cost it time and money.

Some banks are now pressing for the introduction of a deadline to all claims relating to the mis-selling of PPI.

But the chief financial ombudsman, Natalie Ceeney, said that there was still a considerable number of potential claims to come and banks needed to investigate them properly.