Several leading banks have agreed to stop selling payment protection insurance (PPI) alongside personal loans in the wake of a crackdown on the practice.

The Financial Services Authority, (FSA) which has been cracking down on the sale of PPI, welcomed the move by Alliance & Leicester, Barclays, The Co-Operative Bank, Lloyds Banking Group (including Lloyds TSB, Halifax, and Bank of Scotland), and RBS/NatWest to stop offering single premium PPI.

Jon Pain, FSA’s managing director of retail markets, said: “We are pleased these firms have stopped selling single premium policies and would expect other firms to notice these developments and review their own positions.

“A PPI product can be helpful for customers wanting protection on a specific credit agreement, as long as the policy is sold appropriately.”

The cost of single premium PPI is added to the loan and interest is charged on the total amount, making the product poor value for money, consumer groups have argued.

Louise Hanson, head of campaigns at Which?, said: “These firms have recognised that the party is over for single premium PPI and the rest should follow suit. It is a fundamentally bad product and should be withdrawn from the market altogether.

“People need to protect their finances more than ever so providers should be developing products that meet consumers’ needs and offer value for money.”

Simon Burgess, managing director of British Insurance, which sells standalone policies, said: “The banks have been operating to the detriment of the consumer and this will cost them billions.

“Monthly PPI is a great alternative – it can be cancelled any time and the consumer is the one with the power, rather than the bank exploiting them.”

The Competition Commission is looking into the sale of the insurance, which covers repayment on loans in the event the customer is unable to pay.