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FISA, the secured loan industry's self-regulatory and compliance body, has also raised concerns about imposing price caps on policies, the possible ban on single premium PPI and the requirement that borrowers should annually opt in.

The comments are contained in FISA's response to the Competition Commission's (CC) provisional findings about the PPI market in the UK.

Last month, the commission published a report saying that consumers buying PPI in the UK have been overcharged by as much as £1.4bn a year. It added that a range of measures needed to be introduced to increase to competition in the market to put an end to such practices.

FISA said in its response that it was supportive of the commission’s proposals to increase the information available to consumers at point of sale and to make comparison between products easier. But it believes the commission’s response raises a number of issues, most critically that selling PPI at the point of sale of another credit product may be prohibited.

FISA argues that this would disadvantage consumers and was unnecessary, given the existing safeguards that exist within the Consumer Credit Act (CCA).

John Parker, chief executive of FISA, said: "The proposals regarding not selling PPI at the credit point of sale do not take into account the integrated decision that consumers are making at that time.

"An essential part of the decision to take out a secured loan is whether the consumer believes they will be able to continue repaying the loan should they succumb to unemployment, illness or accident. It would be difficult for the consumer to make this integrated decision if there was a time gap between the sale of the loan and any PPI discussions."

Parker added: "Also, separating the point at which advice could be given about the loan and the PPI would appear to run counter to the FSA’s Treating Customers Fairly initiative which ensures the consumer’s specific circumstances are taken into account when they are receiving advice."

The body also believes that imposing price caps on policies at this stage would be an extreme measure given the wide range of remedies proposed by the commission to address the competitive deficiencies in the PPI market.

"The proposed price cap remedy is extreme and rather than increasing competition is much more likely to distort it with firms seeking ways to retain their margins while operating under the cap," Parker added.

"This could result in the scope of cover in policies being reduced which would obviously not benefit consumers.

"We believe that this remedy should be held in reserve to be considered if the series of other measures put forward by the Commission do not correct the PPI market problems in the next 18 months to two years."

The association also said that the requirement that borrowers should annually opt in would cause difficulties with consumers potentially forgetting to opt in increasing the likelihood of lapsed policies.

FISA said this would effectively mean the end of single premium policies because lapse rates would be so high.