Bank hit with £7 million fine over payment protection telesales

The bank sold the insurance policies to customers who asked it for personal loans over a three year period from January 2005 to December 2007. Telephone sales techniques were found to have broken insurance industry rules.

Phone sales people, for example, were told to pressurise any customers who queried or complained about the automatic inclusion of the cost of insurance in quotes.

A&L has been fined £7 million over the activity, which the FSA said represented serious A&L failings. It said that that the fine would have been even higher had A&L not agreed to begin its own programme of redress for customers unfairly treated by it.

The controversy surrounds payment protection insurance (PPI), a product which pays off your loan under certain circumstances in return for the payment of an insurance premium. That premium is added to the loan and attracts interest.

"A&L did not generally make it sufficiently clear to customers in the telephone sales discussion that PPI was optional," said the FSA's report into the matter. "Advisers sought to find a reason to recommend and sell PPI whenever customers applied for a personal loan, and as a result failed to pay due regard to the customer’s real demands and needs. This resulted in unacceptable levels of non-compliant sales and a high risk of unsuitable sales over a three year period."

Margaret Cole, director of enforcement at the FSA, said: "the failings at A&L 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".

The FSA investigation found that the average cost of the insurance was £1,265 over a four year period, and that £210 of that was interest. It estimated that A&L earned a net income of £135 million from PPI sales over the period.

The investigation, which focused on the telephone sales activity of the company, found that A&L had trained its staff to use sales techniques which assumed that PPI would form part of the loan. The training showed employees how to put pressure on any potential customers who resisted PPI and called it a "pressure cooker effect".

It also found that phone sellers were given significant incentives to sell insurance. "In 2007 advisers receiving inbound calls needed to sell six loans without insurance to achieve the same bonus that they would receive from only one sale with full insurance," it said.

A&L has agreed to contact everyone who was sold a loan payment insurance policy over the phone during the period in question and has agreed to work with an independent firm of accountants to assess customers' needs and pay redress to customers who were mis-sold policies.

"I apologise sincerely for our shortcomings," said A&L chief executive David Bennett. "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."

Had A&L not co-operated it would have been hit with a higher fine, said the regulator. "A&L qualified for a 30% reduction in penalty by settling at an early stage of the FSA's investigation.  Were it not for this discount, the FSA would have imposed a financial penalty of £10 million," said an FSA statement.

A&L has recently agreed to be taken over by Spanish banking giant Santander, which already owns Abbey and recently acquired parts of Bradford & Bingley.

The FSA recently warned that it would be taking action on payment protection insurance since industry practice was still falling well short of the expected standards in the sales of such policies.