FSA to fine banks for insurance mis-selling

A handful of the UK's largest banks and lenders are set to be landed with multimillion-pound fines from the Financial Services Authority over the next few weeks, after being found guilty of mis-selling payment protection insurance to their mortgage and personal loan customers.

The regulator has been investigating the sector for the past two years, and said only two weeks ago that the PPI inquiry is now one of its biggest pieces of ongoing work.

Three companies - Loans.co.uk, the mortgage firm Regency and the retailer Redcat - were landed with fines of £455,000, £56,000 and £270,000 respectively last year. However, the next round of enforcement cases is set to involve much larger high-street names, with fines expected to run to seven-figure sums.

The PPI market has come under intense criticism from consumer groups. As well as charging high premiums, the small print on many policies makes it difficult to make a successful claim. The Office of Fair Trading is expected to refer the market to the Competition Commission over the next few weeks, after its preliminary investigations revealed that consumers are rarely given the chance to shop around when they are sold a PPI policy.

Seven million PPI policies are sold a year. The market is worth £5.5bn, and accounts for a significant proportion of the profits of several of the UK's largest lenders.

The FSA said that by June this year, it will have visited more than 200 firms during its investigation into the PPI market. This year, the regulator intends to focus on companies where the sale of the product is a relatively minor element of their business, such as retailers who sell insurance with home purchase agreements. It aims to ensure all customers are told that PPI is optional, and that sellers explain exactly what the policy will and will not pay out for.