Alliance & Leicester (A&L) has been fined following an investigation into the sale of insurance alongside unsecured loans.
The Financial Services Authority found that those selling the policies failed to give customers important details, such as the fact that the insurance is optional.
Staff were also found to have put pressure on customers when the inclusion of payment protection insurance (PPI) - which is offered to protect against an inability to pay off loans - was queried.
A&L will have to pay a £7 million fine as a result of the findings.
Director of enforcement at the FSA Margaret Cole remarked: "The failings at A&L are the most serious we have found ... it is very disappointing that after three years of regulation we are still finding serious problems in PPI sales."
Chief executive of A&L David Bennett apologised for the shortcomings, adding that the company would be writing to every customer to explain.
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