Complaints over mis-sold loan insurance by British banks decline

* UK banks have set aside $36 billion for compensation

* Ombudsman has warned payouts to continue for years

LONDON, Jan 27 (Reuters) - The number of complaints receivedby Britain's Financial Ombudsman Service about the mis-sellingof loan insurance by banks and other financial services firmsfell in the fourth quarter of 2014, the service said on Tuesday.

Banks have already set aside 24 billion pounds ($36 billion)to compensate customers mis-sold payment protection insurance(PPI) in what has become Britain's costliest consumer financescandal.

The policies were meant to protect borrowers in the event ofsickness or unemployment but were often sold to those who wouldhave been ineligible to claim.

The ombudsman, which deals with cases in which banks andtheir customers cannot settle a dispute, said it still receivedabout 4,000 complaints a week about mis-sold loan insurancebetween October and December last year, raising the prospectbanks will need to set aside more for compensation.

Last month, Chief Financial Ombudsman Carline Wayman saidbanks and other financial services firms were likely to bepaying out compensation for years to come.

Lloyds Banking Group has so far set aside 11.3billion pounds for compensation, more than any other bank.Barclays, Royal Bank of Scotland and HSBC have also set aside billions of pounds.

About three out of five cases relating to PPI were settledin favour of the consumer between April and December last year,the ombudsman said. After PPI, bank accounts and mortgages werethe next most complained about financial products.

The ombudsman said it received 74,357 new complaints duringthe fourth quarter, of which 48,516 related to PPI.

That represented a decline on the 57,094 new PPI cases takenon by the ombudsman in the previous quarter and a slowdown froma peak of 12,000 cases a week in late 2012.

($1 = 0.6658 pounds) (Reporting by Matt Scuffham; Editing by Mark Potter)