The bank is likely to have mis-sold the insurance to customers, according to the FSA.
Alliance & Leicester (A&L) has become the latest financial firm to be hit by a fine for mis-selling payment protection insurance (PPI) on loans.
The bank was censured today by regulators the Financial Services Authority (FSA). The severity of the case is reflected by the size of the fine: £7 million.
PPI is sold alongside loans and covers policyholders who find themselves less able to make repayments after they suffer from a sudden change in circumstances, such as job loss. It has been criticised by consumer groups recently, however, for providing an insufficient level of cover - and for being mis-sold by providers as "default", rather than an optional extra.
A&L was found not to have made customers aware that taking out PPI was voluntary - and not to have made the cost of the insurance clear enough. The FSA said that this means there was a "high risk" of unsuitable sales being made as a result.
Commenting on the regulator's decision Margaret Cole, the FSA's director of enforcement, 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."
She added: "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. It is particularly unacceptable for a firm to train its advisers to put pressure on customers when recommending insurance cover which they have not asked for and may not need. "
PPI sales conducted by A&L between January 2005 to December 2007 were investigated by the FSA.
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