The six-figure fine for the insurer is the second major penalty levied on a PPI provider so far this year.
Insurer Liverpool Victoria has been fined £840,000 by the Financial Services Authority (FSA).
The City watchdog handed down the fine due to the firm's mis-selling of Payment Protection Insurance (PPI), a form of cover which is designed to help holders of unsecured loans make their repayments in the event of a sudden loss of income.
However, Liverpool Victoria was found by the FSA to have not told many customers that they were taking out the cover along with the loan, meaning that they were forced to make payments without having specifically chosen to purchase the insurance.
Accordingly, 14,500 customers will now be contacted and reimbursed by the insurer for the interest they paid on the PPI, Liverpool Victoria has indicated. The firm also apologised yesterday for the miss-selling.
The fine also comes as part of a wider crackdown against the mis-selling of PPI by the FSA. In January, HFC Bank, which is part of the HSBC group, was hit by a £1 million fine after committing similar misdemeanours to Liverpool Victoria.
Commenting on the judgement, FSA director of enforcement Margaret Cole said: "When customers phone for a quote, it is totally unacceptable for firms to add on the cost of insurance which the customer has not asked for. Many customers make their decisions when speaking to sales staff."
She added: "If those conversations are unclear or misleading it will be no defence for firms to say that full details were included in paperwork which customers received later. Liverpool Victoria is now proposing a comprehensive programme to contact its customers and pay them compensation where appropriate."
Compare loans via money.co.uk
