The penalty is the third-biggest fine ever handed out by the FSA and the biggest-ever retail financial services fine.
The average cost of the 211,000 policies was £1,265, meaning the lender faces a huge compensation bill on top of the fine.
The FSA says A&L’s failings were the “most serious” it has seen. In telephone sales of PPI on unsecured loans between January 2005 and December 2007, A&L failed to give full details of the costs, did not properly consider customer needs and put pressure on customers who queried their need for PPI.
FSA director of enforcement Margaret Cole says: “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.”
Group chief executive David Bennett says: “We will write to every customer concerned and work with independent accountants and the FSA to ensure that we put right any disadvantage identified.”
Banco Santander’s takeover of A&L was approved by the FSA, High Court and the Bank of Spain this week.