Several major banks are to stop selling controversial premium payment protection insurance alongside personal loans.

The City watchdog has welcomed the move by Alliance & Leicester, Barclays, The Co-Operative Bank, Lloyds Banking Group, which includes Lloyds TSB, Halifax and Bank of Scotland, and Royal Bank of Scotland/Natwest.

All have agreed to stop selling single premium PPI alongside their personal loans by the end of this month.

Instead they will offer only regular premium PPI, this means premiums will be paid on a monthly basis, instead of a lump sum when the customer first takes the policy out.

The benefit of PPI is that it covers debt repayments if a person was to lose their job or becomes unable to work.

Welcoming the move, the Financial Services Authority said that while it recognised the importance of having appropriate insurance in the current economic climate, it remained concerned over the sales standards of single premium PPI.

It has taken action against 20 firms over poor sales practices involving the cover, including levying its largest ever fine in the retail sector when Alliance & Leicester was ordered to pay £7 million for what the FSA described as "serious failings" in its telephone PPI sales.

The Competition Commission published a damning report on PPI last year, in which it called for the sale of single premium cover to be banned.

It also wants firms to stop selling PPI alongside credit agreements, with them instead having to wait for 14 days before they are allowed to contact customers taking out credit cards or loans to sell them the cover.

A spokesman for the Association of British Insurance (ABI) said: "The ABI believes that PPI is a valuable product where it has been sold properly.

"In October 2008 unemployment claims on PPI policies soared 113% compared to October the previous year. This trend looks set to continue.

"The ABI and its member companies have been working with the regulator to ensure that when people take out PPI, they understand what it costs and what it covers so they can make an informed choice."

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