Firms have been requested to no longer sell the loans insurance from the end of May.
The City regulator has set a deadline for firms who continue to sell single premium Payment Protection Insurance (PPI).
In an update, the Financial Services Authority (FSA) said that it has written to all firms concerned, telling them that they must not keep the cover on sale past May 29th and that they should withdraw the products "as soon as possible". The mailshot follows the decision of many major financial services firms last month to stop selling single premium PPI.
The insurance works by covering loan repayments for policyholders who face a sudden loss of income, such as through job loss. It has been slammed by consumer groups for being expensive and providers have been found to have mis-sold the cover to some customers.
Single premium PPI has been particularly controversial, as the nature of the insurance makes it much harder for a customer to switch providers after taking it out in the first place. Indeed, a recent Competition Commission report explicitly banned the sale of the single premium cover from October 2010.
In the letter, Jon Pain, the FSA's managing director of retail markets, wrote: "We believe that PPI can play an important and legitimate role to cover repayments on specific credit agreements for consumers facing job loss, or other issues at this difficult time. However, our focus remains on how this product has been, and continues to be, sold and whether consumers have been treated fairly during the sales process.
"We therefore request that if your firm has not already done so, it stops selling single premium PPI with unsecured personal loans as soon as possible and in any event by May 29th."
