The Financial Services Authority said its latest investigation into sales practices had resulted in 11 firms stopping selling PPI either permanently or temporarily while they sort out their systems.

At least four firms will be investigated further, and the watchdog said it would be looking to impose higher fines for those that failed to meet its standards.

The FSA has been monitoring the way PPI is sold since 2005, and its clampdown has already resulted in fines for five companies, including a £610,00 bill for GE Capital Bank and a £455,000 fine for Loans.co.uk.

PPI is usually sold alongside loans, credit cards and mortgages, and covers debt repayments if people are unable to work due to an accident, illness or if they lose their job.

Some lenders charge as much as £25 a month to cover repayments on a £5,000 loan over three years, adding a considerable sum to the overall cost of the loan.

Lenders are not able to make buying the insurance compulsory, and those who do want cover are often better off shopping around for a standalone policy.

Serious failures

The FSA's latest review, looking at selling practices at 150 firms, revealed they had become better at making it clear to consumers that PPI was optional, and at providing refunds on single premium policies.

However, many firms were not giving clear details about the product and what it cost, were failing to tell consumers what they would be covered for, and when giving advice were not saying why the recommended PPI policy met their needs.

Mystery shopping exercises at personal loan providers had unveiled serious failures in the sales processes of a number of firms selling single-premium PPI alongside loans.

Four of these will now be subject to further investigation, and a further 20 may also come under further scrutiny.

Clive Briault, the FSA's managing director of retail markets, said: "While some progress has been made by the industry, we are extremely disappointed that some firms have still made little progress in improving their sales practices.

"The right PPI can provide valuable protection for consumers, but they are entitled to expect that they will be treated fairly by firms when they buy it. They must be told how this product works, what it covers and how much it costs. At the moment, too many firms are not meeting these requirements.

"We will now strengthen our action against firms who fail to treat customers fairly when selling PPI."

The consumer group Which? said it was shocking that PPI was still being mis-sold to consumers.

Teresa Fritz of Which? Money said: "We want the FSA to name and shame offending lenders so that people are aware of which companies are breaching the rules."

Super complaint

In 2005, the charity Citizens Advice made a super complaint to the Office of Fair Trading (OFT) about the PPI market.

Peter Tutton, social policy officer for the charity, said it was disappointing that firms were still failing customers.

"We believe that the OFT must now work with the FSA to take firm action against lenders that don't follow the rules to stamp out PPI mis-selling for good.

"It is now two years since we first made our super complaint on PPI, yet people are still paying over the odds for policies or having problems when they try to make a claim.

"PPI is supposed to protect people against debt, but lenders still seem to be content to sell excessively expensive products that do little to help people at their time of need."