Among the bank’s failings in the telephone sales process of payment protection for unsecured loans, the FSA found that A&L; did not provide customers with full details of the costs involved, and sought to sell the product without properly considering the needs of its customers.

The biggest fine ever implemented by the FSA for the mis-selling of loan insurance, the penalty reflects the fact that this is the “most serious” instance of mis-sold loan insurance that the FSA has seen. It found that the bank failed to make clear to customers in the sales process that it was optional and instructed its sales team to put pressure on customers that queried the inclusion of PPI in their quotation or challenged recommendations to include it in their loan agreement.

The result was an “unacceptable” level of non-compliant sales and a “high risk” of unsuitable sales over a three year period, between January 2005 and December 2007, the regulator found.

Approximately 210,000 PPI policies were sold by A&L; during this time, at an average price of £1,265 per customer, but the FSA has found that there was a “general failure” to give customers sufficient details about the costs involved – the cost of the insurance is usually added onto the loan as debt and therefore incurs interest, costing a lot more than customers might expect.

“It is very disappointing that after three years of regulation we are still finding serious problems in PPI sales.” commented Margaret Cole, director of enforcement at the FSA.

“This case shows that we will continue to step up the action we take when firms do not sell PPI properly. Customers should be able to rely on impartial advice based on their individual needs and demands.”

As the FSA stipulated in its recent report on PPI, “firms must ensure their PPI sales processes are up to the required standards.” said Ms Cole. “They 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.”

Alliance & Leicester could have been staring at the business end of an even bigger fine – £10million – if it had not agreed to settle the fine at an early stage of the investigation, for which it received a 30 per cent discount, and if it had not already put remedial action into practice to rectify its failures.

Alliance & Leicester group chief executive, David Bennett, has said in a statement: “I apologise sincerely for our shortcomings. We will be writing to every customer concerned and will be working with independent accountants and the FSA to ensure that we put right any disadvantage identified.”

“Customers can be assured that we are taking this matter very seriously and that we have reviewed and tightened up our processes from December 2007 to ensure that all customers get the right information and advice.”

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