The FSA has been taking a close look at this kind of insurance
Land of Leather and its chief executive have been fined because staff selling payment protection insurance (PPI) on loans were not properly trained.
The firm was fined £210,000 by the Financial Services Authority (FSA) for failing to have effective monitoring to ensure PPI was being sold fairly.
The retailer's chief executive Paul Briant was fined £14,000.
The FSA, which says 58,000 customers were at risk, has been taking firm action on the high-value PPI industry.
The insurance is supposed to help people make repayments on loans if they fall ill or lose their jobs.
Furniture retailer Land of Leather became authorised to sell PPI in May 2006 and sold it until February 2007, without any effective check on its sales force, the FSA said.
As a result of the failings, around 58,000 customers were exposed to an unacceptable risk of buying unsuitable PPI products, the FSA said.
"Retail firms whose primary business is not selling general insurance will be held accountable to the same regulatory standards as the rest of the financial services industry," said Margaret Cole, the FSA's director of enforcement.
She said the fine for the chief executive showed that senior management were responsible for ensuring that their firm had "robust and effective systems and controls" in place.
"Delegating authority for dealing with PPI does not mean delegating responsibility," the FSA said.
His and the firm's fines were both cut by 30% as they agreed to settle at an early stage.
The firm voluntarily suspended PPI sales when the FSA made clear its concerns.
It also contacted a number of customers who had bought PPI from them, but found no evidence of mis-selling and only a small number of policies were cancelled.
"Land of Leather takes these issues very seriously and has reviewed all the processes around the sale of PPI products," said a spokesman for the firm, based in Northfleet, Kent.
"We were not mis-selling these products, but we do regret that some of the service processes around their sale were not as robust as our customers have the right to expect. We acted quickly to remedy these weaknesses."
Last September, the FSA threatened the retail market with higher fines if they found failings in the sale of PPI.
A number of consumer groups have raised concerns about the £5bn PPI market.
An Office of Fair Trading report concluded that consumers do not shop around for the best deal, partly because the complex nature of the product makes comparison between different policies difficult.
It referred the issue to the Competition Commission, which is expected to complete an investigation into the industry in the coming weeks.