Any Lloyds customers who feel they were mis-sold PPI are invited to make a claim and the bank will be reviewing all past sales.
The company had previously been part of the judicial review against the FSA and FOS with the British Bankers Association but the case was dismissed in April.
Antonio Horta-Osorio, chief executive, has since withdrawn Lloyds from the review.
The BBA has until 10 May to make an appeal against the dismissal.
This includes other major banks, Barclays, HSBC and Royal Bank of Scotland. Lloyds had previously stalled on claims and resisted making provisions for PPI redress. Total industry costs for redress could reach £8bn.
The bank had been in talks with the FSA and details were revealed in the company’s interim management statement published this week. The statement read: “Lloyds Banking Group has concluded that there are certain circumstances where customer contact and/or redress will be appropriate.
“Accordingly the Group has made a provision of £3,200m in respect of the anticipated costs of such contact and/or redress including administration expenses.
“There are still a number of uncertainties as to the eventual costs.” The decision was applauded by Which? executive director Richard Lloyd. He said: “This is great news for the millions of customers who have been mis-sold PPI. It’s refreshing to see a bank break rank from its peers and do the right thing by its customers”
Lloyds are also expected to pay costs to the FSCS for investment company failures.
The company made a loss of £3.47bn for the first quarter of 2011 compared to a profit of £721m for the first quarter of 2010.
This loss also included £333m integration costs and negative insurance volatility of £77m.
Customers who wish to claim for PPI redress are advised to call 08453 005599 or download a questionnaire from http://www.lloydstsb.com/payment_protection_insurance_complaints.asp