Banks strive to show that they're not the bad guys

From the continuing furore over unfair overdraft charges to growing unease about what many consider to be irresponsible lending, the way in which banks treat their customers is under intense scrutiny. On Monday, though, our financial institutions will try to improve their tarnished reputation with a makeover of the UK Banking Code, which sets out how banks should treat their customers, is being given a makeover.

The revised standards of good practice will include a new commitment to lend responsibly, with the adoption of stronger credit- checking facilities and a requirement for banks to be proactive in contacting and offering help to people facing financial difficulties. It will also require banks to give clearer information on their products, including providing consumers with a pre-sale summary box detailing terms and conditions for unsecured loans and savings accounts.

In addition, banks that sign up to the code will be barred from closing a customer's account if they make a complaint. This is particularly significant in the light of the consumer rebellion over overdraft fees, which has resulted in some big high-street names shutting the accounts of people who have sued them for the return of fees.

Brian Mairs, assistant director of the British Bankers' Association (BBA), says the industry consulted the public over areas in need of improvement, with the objective of "treating customers fairly and reasonably".

But consumer groups aren't convinced. "The idea there should be an over-arching fairness obligation is welcome. But we feel that in many areas the code does not go far enough," says a spokeswoman for the National Consumer Council (NCC). In particular, the code fails to require banks to offer basic current accounts – slimmed-down accounts without overdraft facilities – to those with poor credit histories or undischarged bankrupts. At present, many of these people are "unbanked".

The NCC would also like to see "positive data sharing", with banks telling each other not only when certain customers have defaulted on a loan but also when they have paid up on time. "We want to encourage responsible lending," says the NCC spokeswoman, "but we feel people should get credit if they have repaid debts."

Vera Cottrell, principal policy adviser at consumer group Which?, also has a wish list. One issue she highlights is that people leave a trail with credit- checking agencies when they make enquiries about products with banks. This can then be seen and used by other banks when the same consumer enquires about their products. "We think this discourages people from shopping around."

She adds: "We would also have liked to see a higher minimum monthly repayment imposed by credit card providers, which would ensure that people pay off their debts and don't get into trouble."

Both organisations are concerned about how the voluntary code will be policed and have called for more publicity to be given to banks that perform poorly against the code.

However, Mr Mairs insists that the regime is tough enough: "The code is policed by the Banking Code Standards Board and complaints can also be referred to the Financial Ombudsman Service."

Kevin Mountford, head of savings and current accounts at price-comparison site Moneysupermarket.com, says the code does have a role to play in the patchwork of consumer protection. "I think, broadly speaking, that it is trying to improve the transparency of offerings and to help individuals a bit more."

But he adds that people are still daunted by the idea of switching current accounts as they fear being caught in an administrative nightmare. "If someone sees they are not getting a good deal, they should be helped to move to something more competitive. But we are still hearing horror stories about people who try to switch and get caught up in the system for weeks and weeks."

All's fair in finance: the Banking Code at a glance

This is a code that sets standards of good practice for banks and building societies to follow when they are dealing with customers.

Most institutions are signed up to it and those that breach the code are expected to make amends, although the whole process is voluntary. If a complaint goes to the Financial Ombudsman, a breach is likely to count against a bank.

The code is extensive and covers areas such as: fair and clear advertising of products; a commitment to send customers regular account statements; treating personal data carefully and in confidence; and clarity of product terms and conditions.