Alliance & Leicester will be forced to pay a staggering fine of £7 million, after an investigation by the Financial Services Authority (FSA) found that customers were being pressured to buy the optional cover of payment protection insurance (PPI).

According to the FSA, Alliance & Leicester trained their staff to put pressure on customers to sign up for PPI and failed to explain the full terms and conditions of the insurance cover.

The investigation focused on a three year period of telephone sales, from January 2005 to December 2007, where customers were heavily targeted by staff to buy PPI. Within this timeframe Alliance & Leicester sold approximately 210,000 PPI policies to customers seeking a personal loan at an average price of £1,265- without the detailing the cost of the PPI or if the customer in question would genuinely benefit from the service. 

“The failings at A&L are the most serious we have found,” says Margaret Cole, FSA Director of Enforcement.

“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.”

In their defence Alliance & Leicester confirmed that all customers were sent the full details of their new policy in writing, which include the full cost of their loan and PPI.

However, Margaret Cole adds:

“Firms cannot rely on paperwork sent out later as an excuse for unclear or misleading statements given on the telephone.”

“As we said in our recent update on our PPI work, firms must ensure their PPI sales processes are up to the required standards.”

The FSA notes that the £7 million which Alliance & Leicester have agreed to pay is a record PPI fine. However if the firm had not agreed to fully cooperate with FSA investigations early on (and been rewarded with a 30% reduction of the final penalty) the fine would have reached a staggering £10 million.

“I apologise sincerely for our shortcomings,” comments David Bennett Group Chief Executive of Alliance & Leicester.

“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.” 

The letter which Alliance & Leicester customers will receive will instruct customers on how they can raise any concerns they may have. These will be reviewed and any disadvantage identified will be put right.

Unfortunately the Alliance & Leicester case is not the first of its kind. A number of companies have be disciplined and fined for the misleading sale of PPI, including the likes of Liverpool Victoria Banking Services.

The entire PPI service has also been slammed in the past with the Competition Commission, the independent public body which conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries claiming that credit card customers with Payment Protection Insurance were being overcharged by a shocking £1.4 billion a year. Read more: Payment Protection Insurance: Customers Ripped Off

“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,” added Bennett.

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