The bank will have to pay £1,085,000 for failing to ensure that the PPI advice it gave customers was suitable - the biggest PPI fine to date.
It also failed to have adequate systems and controls for the sale of PPI over the same period, spanning January 2005 to May 2007.
HFC's procedures did not require advisers in its branch network to gather sufficient information about customers' circumstances and take sufficient information into account when considering whether PPI was suitable.
HFC's advisers were also not required to explain their policy recommendations in full or identify to customers any demands and needs which the policy would not meet, putting customers at 'unnacceptable' risk.
Margaret Cole, FSA director of enforcement said the regulator was determined to see much better practice in the PPI market.
"We announced in September that we would be imposing higher fines for serious failings in the retail market including against firms who fall short in relation to PPI. The fine against HFC is evidence of our determination in this area."
Between January 2005 and May 2007 HFC sold PPI with 75 per cent of the loans it provided, totalling 163,000 PPI policies (of which 124,000 were single premium policies sold with unsecured loans). Over this period HFC traded under the "Household Bank" and "Beneficial Finance" names.
Following discussions with the FSA, HFC has agreed to implement changes to its sales processes and has committed to a robust remedial action plan, overseen by third party accountants, involving a programme of customer contact and, if appropriate, steps to ensure that its customers are not disadvantaged.
By agreeing to settle at an early stage HFC qualified for a 30 per cent discount – without the discount the fine would have been £1,550,000.
