Redcats, the home shopping division of PPR, the French retail group, was ajudged guilty of serious failings that led to about 160,000 customers being sold unsuitable PPI.

Best known in Britain for its Empire Stores catalogue and online brand, Redcats was found to have serious weaknesses in its systems, controls and levels of staff training.

Customers who were sold PPI were not properly informed of exclusions and limitations in the insurance cover, nor were their personal circumstances properly assessed by Redcats’ sales staff.

In more than 3,000 cases Redcats failed to find out how old customers were, even though those over a certain age were excluded from cover. A total of 160,100 customers were sold PPI that may not have been suitable, the FSA concluded.

Sir Callum McCarthy, the FSA chairman, told The Times that the Redcats case was one of a dozen PPI cases being investigated by the regulator’s enforcement division.

PPI is under intense scrutiny by financial and competition regulators amid concerns that the £6 billion-a-year industry, although profiting banks and insurers, is not serving consumers. Policyholders with PPI have their interest and principal payments made if they lose their jobs or have to spend time in hospital. However, there are many exclusions, and these are not always clearly explained to customers. For every £1 paid in premiums only 20p is typically paid out in claims, an egregiously low claims rate that has led the Office of Fair Trading to suspect profiteering. It is expected to refer the industry to the Competition Commission early next year.

Redcats has been ordered to examine past sales for suitability and, if necessary, pay compensation.

The fine would have been £386,000 but for the co-operation of Redcats and its willingness to settle early, which qualified it for a 30 per cent discount, the FSA said.

Redcats, a sister company to Gucci and Yves Saint Laurent, said that it had co-operated fully with the FSA and had invested heavily in improving its compliance systems.

Margaret Cole, head of enforcement for the FSA, said that PPI was “an FSA priority” and promised that more cases would follow as she also publicly censured Eastern Western Motor Group, a chain of franchised car dealers in Scotland and the North East, for PPI failings. It failed to keep proper customer records or clearly state prices when selling PPI to cover car finance agreements.

Two other firms, Regency and Loans.co.uk, have also been fined for deficient PPI selling practices.

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