The Financial Services Authority has fined Alliance & Leicester (A&L) a record-breaking £7 million for mis-selling 210,000 payment protection insurance (PPI) policies.

The City watchdog found that the high-street bank sold the policies to people seeking personal loans between January 2005 and December 2007 without giving customers details about the cost of the policies or properly considering whether customers needed the insurance.

The average customer paid £1,265 for the cover.

A&L is the eighteenth company fined over PPI, but the largest previous fine, given to a subsidiary of HSBC, was £1 million.

Margaret Cole, the FSA's enforcement director, said: "The failings at A&L are the most serious we've found."

The FSA said that A&L had trained its staff to put pressure on customers if they queried the inclusion of PPI in their loan quotation or disagreed with A&L's advisers' recommendations.

The bank will contact customers who took out policies by telephone between those dates and pay compensation where appropriate.

David Bennett, A&L's chief executive, apologised for the mis-selling. "We will be writing to every customer concerned and will be working with independent accountants and the FSA to ensure that we put right any disadvantage identified," he said.

In the meantime, A&L said that the High Court had approved its £1.4 billion takeover by Santander, the Spanish bank that already owns Abbey in the UK and has recently bought the branches and deposits of Bradford & Bingley, the nationalised bank.

A judge in London said today that the court would formally sanction a scheme of arrangement involving the cancellation of A&L’s share capital and the issue to shareholders of one Santander share in return for every three A&L shares.

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