Correspondence was sent out under the name Sechiari Clark & Mitchell, later renamed SCM Solicitors, to customers who had ignored previous letters under the bank's own letterhead.
Chief executive Antonio Horta-Osorio disclosed details of the practice, which the state-backed banking group decided to end this year, in a letter to the Treasury Select Committee.
He attached what he described as a "typical" example of such correspondence, on SCM letterhead, dated in January this year, telling a customer that he or she is required to pay thousands of pounds to avoid court proceedings being issued.
Andrew Tyrie, chairman of the committee, said: "This is very concerning. The sample letter seems calculated to mislead.
"Lloyds failed to convince us that this was not the case, or to provide any satisfactory explanation as to why it issued letters in this form, but at least this practice has been brought to an end.
"Banks have repeatedly assured Parliament that they are raising standards and now have robust procedures in place to bring consumer detriment to an end. But examples of bad practice like this keep on surfacing."
In his letter to MPs, Mr Horta-Osorio disclosed that the letters came from a law firm formed by solicitors within Lloyds Bank to conduct debt collection on its behalf. Until 2011 it was registered as a law firm with the Solicitors' Regulation Authority, he added. In July 2011, the partnership was dissolved.
The name SCM solicitors was kept "and its status as part of the in-house litigation team was disclosed on correspondence", Mr Horta-Osorio said.
He added: "We believe that views on transparency and clarity have changed.
"Accordingly, we took the decision in March this year that the use of SCM Solicitors would cease as soon as the necessary changes could be made to IT systems."
A Lloyds spokesman said: "A small number of customers would have received letters from SCM Solicitors where they had previously not responded to any prior attempts to engage with them. This was intended to encourage customers to speak with us."
Last month payday lender Wonga had to pay £2.6m in compensation after chasing customers with fake legal letters.