An investigation by the BBC claims Lloyds has been reducing payouts to customers who believe they were wrongly sold PPI by using so-called comparative - or alternative - redress.
One expert blasted it a "scandal coming out of a scandal" and said Lloyds had been able to cut its PPI compensation bill by more than £60 million since it began using the loophole over the past year.
The BBC alleges that figures from the Professional Financial Claims Association shows Lloyds used comparative redress in as many as one in four cases in some months.
But Lloyds disputed the figures, saying it had been used in 5% of all PPI cases since last February.
Comparative redress can be used when a customer was sold a single premium policy and where the lender deems they were eligible for PPI, but would have instead bought a cheaper, regular premium policy paid in monthly instalments. Claimants receive the difference between single premium and regular premium PPI.
Lloyds said: "The Financial Conduct Authority handbook is very clear that in these specific circumstances, the provider should give redress that puts the customer in the position they would have been in had they taken the regular premium policy."
TheFinancial Ombudsman Servicesaid it was seeing "a small number" of cases relating to comparative redress involving all the major high street lenders and advised claimants who felt they had been wrongly offered comparative redress to contact their bank first.