Sources said that the redress scheme would cost Lloyds just under £300m, with more than £50m also set aside to cover administrative costs.
The issue is understood to centre on the way Lloyds applied policies relating to financial difficulty assessments, leading to some customers being charged in error between 2009 and 2016.
One insider said that affected customers, who will receive an average of £350 in repaid fees and interest, would be contacted proactively by Lloyds and that they needed to take no action themselves.
The vast majority of the bill has already been provided for in previous results announcements, but one insider said Lloyds would have to top up its provisions by tens of millions of pounds on Thursday.
The Financial Conduct Authority (FCA), which is investigating Lloyds over its treatment of customers in mortgage arrears, is understood to have been consulted on the bank's plan.
The existence of an enforcement probe by the City watchdog was revealed last year and reiterated in Lloyds' latest annual report, published in February, which said: "On 26 May 2016, the Group was informed that an enforcement team at the FCA had commenced an investigation in connection with the group's mortgage arrears handling activities.
"This investigation is ongoing and it is currently not possible to make a reliable assessment of the liability, if any, that may result from the investigation."
The progress of the FCA inquiry is unclear, although it could see Lloyds being hit with a hefty fine if it concludes that customers were treated unfairly.
While not all customers were treated inconsistently, the bank is said to have decided to repay every customer who fell behind with their mortgage repayments during the relevant period.
The fact that the errors were taking place over such a protracted period and until relatively recently could have consequences for the bonuses of senior managers, according to one City pay consultant.
The mortgage arrears remediation programme is the latest in a string of conduct failings to hit Lloyds, which has already had to set aside more than £17bn for PPI mis-selling claims.
People close to the bank said it was likely to have to add well over £500m to that bill on Thursday, reinforcing its status as by far the worst-exposed lender to the PPI scandal.
SKY News.
