Banks have agreed a "new deal" with the public after a series of attacks on their behaviour, ranging from reckless lending to the closure of the accounts of people who make complaints.
In a new banking code introduced today, Britain's high street banks and building societies promise to be more open about interest charges and warn customers who are in danger of running into financial problems.
Among the new commitments, Barclays, Lloyds, HBOS and others promise to be "sympathetic and positive" when dealing with debtors, informing them where they can find free independent advice.
They have also promised to stop closing accounts of customers who make a valid complaint, a revenge tactic criticised by the Financial Ombudsman last year.
The changes, announced by the British Bankers' Association, come as financial institutions face a rise in bad debts – because of the economic downturn – and intense scrutiny of their activities. The Office of Fair Trading has been conducting an investigation into what it described as "so-called free banking", while the High Court is determining whether "unfair terms" legislation applies to penalty fees on current accounts.
Hundreds of thousands of current account customers have been seeking refunds of charges of the unauthorised borrowing fees, which make banks an estimated £3bn a year.
The mass revolt is not mentioned in the latest review of the code, which is updated every three years.
However, it does seek to address some complaints about the banking system, most notably the explosion of easy credit which is expected to claim more casualties this year in the form of rising repossessions and insolvencies. Under the code, banks must display clearer information about products, including summary boxes for unsecured loans and savings accounts and to inform customers that they can decline a rise in their credit card limit.
Before they approve new loans or credit cards, financial providers should now check whether people can afford to repay them by assessing their income, commitments and credit history. If people look as if they are sliding into trouble, bank managers must intervene before the problem gets worse. The previous code simply stated that banks would treat people in difficulties "sympathetically and positively" but left the onus on customers to approach their bank.
Banks should now help the public if they wish to switch to a rival provider or seek out a dormant account. Institutions also undertake to give customers greater clarity on cheque clearing times, which, in an era of instant electronic transfers, can still take up to five working days.
They must no longer upgrade a consumer from a free account to a fee-paying one without their permission and must give 12 weeks notice of a closure of an account or a branch.
The British Bankers' Association said the code, which was drawn up after consultation with the Government and consumer groups, gave "strong commitments" that banks would lend responsibly and help vulnerable customers.
The consumer group Which? criticised the new code. "A lot more could have been done to really benefit consumers, such as increasing minimum repayments on credit cards and stopping companies sending unsolicited credit card cheques to their customers," said Vera Cottrell, its principal policy adviser.
*Check customers can repay loans and credit cards
*Clearly list interest charges for loans and savings
*Explain how long it takes for cheques to clear
*Stop closing accounts when customers make valid complaints