Carphone Warehouse was fined £245,000 today for failing to send key documents to more than 100,000 customers who bought insurance for mobile phones.
Carphone was fined by the Financial Services Authority (FSA) "for not treating its customers fairly" for much of last year.
The FSA found that Carphone broke the rules of selling insurance over the telephone between January and October 2005 and even continued doing so after it realised it was at fault in March.
It slapped a £245,000 fine on Carphone today but the company hit back and said the penalty was "surprising and disproportionate".
The FSA said Carphone failed to send 118,000 customers the key "statement of demands and needs" when they bought mobile phone insurance over the telephone. It also found that 56,000 of the customers did not receive a policy summary from Carphone.
"This was considered a serious failing by the FSA as both documents contain important information that helps consumers understand the policy they are buying," said the FSA.
The FSA added that Carphone failed "to inform the regulator in a timely manner" of the problems at its telesales arm.
FSA director of retail firms Sarah Wilson said: "Customers were exposed to the risk of being left with an insurance policy which was unnecessary or provided incomplete cover leading to rejected claims.
"In either case they could suffer some degree of financial loss.
"The FSA's general insurance rules have been put in place to provide an appropriate level of consumer protection. Firms must treat their customers fairly."
But Carphone said its customers had not suffered and added that it expected "more tolerance" from the FSA.
Chief executive Charles Dunstone said: "We take every aspect of service and administration very seriously.
"The FSA response does, however, feel a bit like a sledgehammer to crack a nut."