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The Financial Services Authority (FSA) has imposed a seven million pound fine on Alliance & Leicester after it found that it had not given its loan customers adequate guidance on whether to take out payment protection insurance (PPI) on the product.

In an investigation into the firms practice, the FSA found that between January 2005 and December 2007, the bank sold around 210,000 PPI arrangements on its personal loan products, with the average policyholder spending 1,265 pounds on the product.

During this time, it was said to have provided inadequate information about the costs of the loan insurance services, as well as seeking out ways to push the products on to loans customers without considering whether the insurance was necessary or suitable. Furthermore, the FSA ruled that Alliance & Leicester had trained its sale staff to push the PPI products on to personal loans customers who queried the necessity of taking out the cover.

Commenting on the ruling, Margaret Cole, FSA director of enforcement, said: “The failings at Alliance & Leicester are the most serious we have found. This is reflected in the record PPI fine. It is very disappointing that after three years of regulation we are still finding serious problems in PPI sales.” She went on to state that it was essential that consumer interests were protected in the PPI industry and claimed that they should be confident of their lenders extension of free and impartial advice about the products, adding that it was particularly inappropriate for loans providers to actively train staff to promote PPI to those who are sceptical of their necessity.

“[Banks] must change their behaviour where necessary and if they are either unwilling or unable to sell this product in a compliant way, making sure that customers are treated fairly, they should not be selling it at all,” Ms Cole continued. In the announcement, the FSA pointed out that while this is the largest fine imposed for PPI sales failings, the levy would have been higher had the bank not entered into an early settlement of the case. Because it did so, it qualified for a 30 per cent reduction on the total fine of ten million pounds.

Following the announcement, Alliance & Leicester said in a statement that it would contact customers who were sold a PPI product with a personal loan during the investigated period and invite them to air any grievances as to the way that they were treated. It explained that if the bank was found to have acted inappropriately, remedial action will be sought. While the FSA has clamped down on the mis-selling of PPI products, the protection they offer may become increasingly important in a period of economic uncertainty, it has been claimed.

According to David Kuo, head of personal finance at the Motley Fool, the heightened risk of redundancy may make them a more attractive option in the coming months. However, the website pointed to research indicating that many people were looking to cut back on PPI products.

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