The competition watchdog has taken action against Royal Bank of Scotland and Santander after the banks breached a legal order by failing to send, or by sending inaccurate, payment protection insurance reminders.
Both RBS and Santander are now required to appoint an independent body to audit their PPI processes and set up procedures to ensure similar incidents do not happen again.
Following an investigation into PPI by the Competition Commission in 2011, a legally-binding order was put in place which required banks to send out annual reminders that clearly set out how much the customer had paid for their policy, what type of cover they had and reminded them of their right to cancel.
But RBS failed to provide reminders to almost 11,000 of its customers for up to six years, while Santander sent out annual reminders which contained incorrect information to more than 3,400 of its mortgage PPI customers between 2012-2017.
According to the Competition and Markets Authority, this meant consumers were unable to fully assess whether they wanted to continue paying for PPI and were stopping from shopping around effectively.
On top of this, some customers may not have been aware they even still had PPI cover.
RBS has since written to those affected, providing a reminder of their right to cancel their policy and has so far paid out over £1.5m in refunds to customers.
The CMA said this was not the first time either bank had breached the order as both banks were warned by the watchdog to improve their PPI practices in 2016.
Adam Land, the CMA's senior director of remedies, business and financial analysis, said: "It is unacceptable that some banks aren't providing PPI reminders — or are sending inaccurate ones — eight years after our order came into force.
“The legally binding directions we've issued today will make sure that both RBS and Santander now play by the rules. These are serious issues that, in the future, may result in fines if the government gives us the powers we've asked for.
"For now, we expect RBS to repay all affected customers quickly, and for both RBS and Santander to make sure that similar breaches do not happen again."
Payment protection insurance, which was missold to thousands of consumers from as early as the 1980s, was sold alongside finance agreements which insured payments were made if the borrower was unable to make them due to sickness or unemployment.
The full extent of the misselling of PPI was exposed in 2005-06 when the Financial Services Authority — now the Financial Conduct Authority — started fining banks over the sale of such protection.
It has since emerged that the misselling was fuelled by staff incentive schemes and a sales culture which led to bank staff being put under heavy pressure to sell PPI and some senior bonuses depending on sales rates.
The scandal is set to cost the industry more than £50bn, but billions are likely to remain unclaimed as the claims deadline approaches next week (August 29).