Alliance & Leicester was fined a record £7m yesterday for "serious failings" over selling techniques for payment protection insurance (PPI).
The Financial Services Authority (FSA) said telephone sales staff at the bank had failed to make clear that the insurance for its loans was optional, and that they were trained to put pressure on customers who queried the inclusion of PPI.
FSA enforcement director Margaret Cole said: "The failings at A&L (Alliance & Leicester) are the most serious we have found. This is reflected in the record PPI fine."
The failings occurred between 2005 and 2007, the FSA said, when A&L sold 210,000 policies at an average price of £1265 each.
PPI covers people taking out loans against risks including unemployment or serious illness.
The bank's chief executive, David Bennett, said it would refund any customers found to have lost out unnecessarily from the mis-selling.
Mr Bennett said: "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."
A spokesman for A&L said "it was impossible to say" at this stage how much might have to be paid back to customers.
The bank said that, during the period concerned, 41% of its personal loan customers took out PPI with their loan. More than 80% of claims made during the period were paid, it added.
All customers who took out PPI loan insurance following a phone call between January 14, 2005, and December 31, 2007, will be written to.
"The letter will set out the issues and they will then have the opportunity to raise any concerns," A&L said.
The FSA said the failings resulted in "unacceptable levels of non-compliant sales and a high risk of unsuitable sales" over the three years.
Ms Cole said: "Customers should be able to rely on impartial advice based on their individual needs and demands. It is particularly unacceptable for a firm to train its advisers to put pressure on customers when recommending insurance cover which they have not asked for and may not need."
The FSA has previously taken action against 18 firms over poor PPI selling techniques.
Institutions fined include Liverpool Victoria Banking Services for £840,000, HFC Bank for £1,085,000, Loans.co.uk for £455,000, Capital One Bank (Europe) plc for £175,000 and Land of Leather for £210,000.
Ms Cole said: "It is very disappointing that, after three years of regulation, we are still finding serious problems in PPI sales."
The fine came on the same day that A&L's £1.2bn takeover by Spanish bank Santander was given the legal green light by the High Court.
The FSA said A&L's agreement to settle at an "early stage" of the investigation and carry out the comprehensive customer check had saved the bank from a £10m fine.
As well as being the biggest ever PPI-related fine, the £7m is the third-biggest FSA penalty.
The watchdog said that the enforcement action had started after a visit to the bank in May last year as part of an industry-wide PPI survey.
Investigators subsequently checked 100 randomly selected sales calls covering an 11-month period from February to December last year and found that "very few calls appeared fully compliant with its requirements".
"The likelihood is that those findings will have been replicated throughout the relevant period," the FSA said.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article