Companies responsible for selling more than 40 per cent of single premium payment protection policies with secured and unsecured personal loans have agreed to review their sales and compensate customers who were mis-sold the product.

The Financial Service Authority now wants to target other companies which have mis-sold PPI which they offered alongside credit cards and secured loans.

It wants all of the 185,000 complaints – concerning every type of PPI – rejected by firms during the past five years, to be reopened.

It comes after the regulator said companies had been rejecting 60 per cent of the PPI complaints they had received. Of these, 16 per cent had then gone to the Financial Ombudsman Service where 80 per cent were then upheld in the customer’s favour.

PPI policies are designed to offer peace of mind that repayments will be covered in times of crisis, such as illness or unemployment – but they can add as much as £900 to a £5,000 three year loan.

Many customers find it difficult to cancel the policies once they are taken out and some are even unaware that they have bought the policy alongside their loan.

The FSA said it is giving banks and other lenders a “last chance” and that they should “get their house in order” over claims of mis-selling.

Jon Pain, FSA managing director of retail markets, said: “Consumers should not be pressured or deceived into buying PPI and they are entitled to have a policy properly explained to them.

“It is unacceptable that despite previous warnings about poor sales practices, backed by 22 enforcement cases and significant fines, the PPI sector still needs the FSA to intervene on this.”