Abbey National has been fined a record £800,000 for mishandling endowment mortgage complaints and providing the Financial Services Authority with inaccurate and potentially misleading information.
The regulator said the fine would have been "far higher" had not the bank's new owner, the Spanish Banco Santander, acted immediately to ensure that no customers would face a loss as a result.
The FSA said Abbey's home-buyers had potentially lost up to £19 million of compensation after the bank rejected complaints it should have upheld.
It said Britain's second largest mortgage lender mishandled around 5,000 complaints, including 3,500 it rejected, between October 1, 2001 and the end of September, 2003.
During this time it received 37,453 mortgage endowment complaints and rejected 93 per cent of the 20,044 it decided.
It accepts that there was probably a similar level of failure among the 65,000 complaints it received between January, 2001 and the end of last year.
Abbey has now agreed to review all the mortgage endowment complaints it rejected since the beginning of 2000 and pay redress where appropriate.
"By putting its own interests ahead of those of its customer with a mortgage endowment complaint, Abbey has singularly failed to treat its customers fairly," said Clive Briault, the FSA's director of retail markets.
"Its failings were made more serious as they occurred at a time when there was a high level of awareness within the industry about mortgage endowments and concerns regarding the fair handling of complaints.
Abbey said that it has received some 80,000 complaints over the past five years. It is to look again at the 50,000 or so it rejected and will write to all the customers affected by June 22.
This review, which it hopes to finish by the end of this year, will cover only policies it sold and advised on itself, such as those issued by Abbey National Life.