Lloyds dealt new blow with $425 million pound charge

(Adds total cost to Lloyds)

LONDON, March 10 (Reuters) - Lloyds Banking Group took a surprise 350 million pound ($425 million) charge on Friday to compensate customers mis-sold loan insurance, six months after saying it had hopefully drawn a line under the scandal.

The new charge takes the bank's total cost to cover the mis-selling of payment protection insurance (PPI) to 17.35 billion pound in what is Britain's costliest consumer scandal.

The charges for Lloyds are far higher than rivals because it had the biggest share of the market.

The policies were meant to cover repayment loans if customers fell ill or lost their jobs but were often sold to people who did not need them or would be ineligible to claim.

Britain's biggest mortgage lender said the new charge will be reflected in the bank's first quarter results to be announced at the end of April.

The latest provision comes after Britain's financial watchdog last week pushed back by a few months the time that consumers have to claim compensation until Aug. 29, 2019.

Lloyds Chief Financial Officer George Culmer said in October that the 1 billion pound charge the bank set aside last year to repay customers up to the deadline would hopefully be the last big amount to cover claims.

Regulators have had rules for PPI claims in place since 2010 and normally a deadline of three years is set, but surveys showed many people were unaware they had bought the product.

($1 = 0.8230 pounds) (Reporting by Andrew MacAskill; editing by Anjuli Davies and David Clarke)