In recent months you'll have seen lots of comment in the UK press about the evils of Payment Protection Insurance. In our view, the problem is not so much about what the insurance does, but more about how it's sold.

Payment Protection Insurance protects borrowers who fear they'd be unable to maintain their debt repayments if they lost their income due to illness, accident or unemployment. The basic idea of the insurance is sound but the problem is that to make a valid claim, you have to satisfy certain criteria and quite a few people fail to do this. For example, if your job is seasonal or casual, or your illness was due to back pain, you won't be able to claim. In fact only 4% of policyholders make a claim and one in six of claims are rejected.

However, the worst aspect is that lenders have clearly pressurised some people into buying Payment Protection Insurance when they really didn't need it - either because their employer will continue to pay them if they're off ill or they already have other types of insurance that provide similar benefits or the nature of their employment would disqualify them from claiming. Indeed, according to Defaqto the financial researcher, 60% of online credit card companies and 30% of loan providers fail to show you the terms and conditions for the insurance before signing you up. It's these terms and conditions that tell you when you can't claim.

Only a few months ago FSA's published the results of its mystery shopper investigation into Payment Protection Insurance. This concluded that around half of the lenders shopped failed to explain the details and exclusions to customers or ensure the insurance was suitable for their clients. Whilst the investigation didn't conclude that lenders were compulsorily selling PPI, they found it was frequently added to loan quotations without it being explained that the insurance was optional.

And even worse in our view, many lenders do not explain the full cost of the insurance. In many cases the full cost of the insurance (for the entire period of the loan), was being added to the loan as a lump sum at the outset rather than being paid as a monthly premium. This effectively means that the borrower cannot cancel the insurance without paying off the entire loan - and interest is charged on the insurance premium!

Now after months of deliberation the Financial Services Authority (FSA) has at last shown its teeth. It's told Banks, Building Societies and other lenders that they could be forced to cease selling Payment Protection Insurance alongside loans and mortgages if they fail to clean up their act.

In a confidential letter sent to the Council of Mortgage Lenders leaked to the National Press, the FSA threatens to bring in