Banks are paying the price for moving accounts without informing customers.
THERE IS nothing so frustrating as being promised something, only to find that the pledge made is not being kept. Even worse is the realisation that, not only are things no better than before, the person making the original promise has actually made them worse - without telling you first.

Banks are among the worst offenders. For years, they have wooed new customers by offering exceptionally high rates of interest. Then, once the account is opened, the rate slips steadily downwards, without the punter even being informed what is happening.

This resembled a recent case at Northern Rock, the former building society, which angered many of its account holders by switching them into new accounts with different notice periods and, often, different rates of interest.

The Rock claimed its move was caused by the need to "rationalise" its various accounts. But many customers argued that their terms had effectively been worsened by the changes. The row even led to the Treasury announcing that it would be investigating the issue.

The British Bankers' Association (BBA) stepped in this week with changes to its Banking Code, which aims to ensure that this kind of behaviour will not happen again.

Tim Sweeney, director general at the BBA, says: "The revised code deals vigorously with recent concerns voiced by the Treasury and others to make sure that customers... are not abandoned in uncompetitive accounts."

Under the revised code, when notifying customers of changes in interest rates, banks must state both the old and the new rate. This will make it easier for customers to know how the interest rate change has affected them.

The new code also claims to ban "obsolete" accounts so that banks and building societies are required to maintain the interest rate on such accounts at the same level as similar newer accounts.

If a change is made to the notice period on a customer's account, banks and building societies will not apply it for at least 60 days if it is not in the customer's favour.

A "cooling off" period for new savings accounts will be introduced, giving customers 14 days to switch to another account or get their money back with interest, without a notice period or charges.

The changes have been greeted with approval by consumer groups. Neil Walkling, of the Consumers Association, which recently published a report on obsolete accounts in Which? magazine, says he is pleased with the content of the new code.

But he points out that, when the code was last reviewed in March last year, the problem was meant to have been solved by ensuring that obsolete accounts would simply cease to exist. However, banks evaded the code's provisions by keeping accounts "live", lowering the interest paid on them and aggressively marketing new accounts with higher rates.

Mr Walkling adds: "Any voluntary code is only effective if the banks try to apply it and not undermine it by trying to get around the code. In a few years we might be back where we were before."

The banking code was first introduced in March 1992 and is generally reviewed every two and a half to three years. Anger over Northern Rock sparked this week's update.

Roger Miles, a BBA spokesman, says: "The next review is planned for late next year, but if any section of the code is causing public concern the code is robust enough to be able to respond quickly."