Sir Bryan Carsberg accused the banks of circumventing the code of good banking practice's rules on confidentiality and the selling of non-banking services in his submission to the review committee headed by Sir George Blunden that is looking at the workings of the 16-month-old code.
'It does seem that the spirit and even the letter of the code are not being observed, and I hope that the review committee will recommend strong action to stop this,' Sir Bryan said.
The code requires banks and building societies not to pass customers' names and addresses to other companies in the same group without consent. While Lloyds asks its customers for express consent, Barclays makes it a condition of signing up for any service that customers agree to have their names passed to other parts of the bank. Midland assumes that customers have given permission unless they sign a declaration to the contrary, and National Westminster's life insurance sales force is employed by the bank, and so has access to customers' accounts anyway.
Sir Bryan believes the scope of the code should be widened to include deposit accounts, obsolete savings accounts and mortgages.
Under the current code, customers are expected to spot notices in the press or in branches announcing that a deposit account has been superceded by a better one. Sir Bryan said that the tendency of customers to use cash machines, and the development of telephone banking, made a strong argument for banks and building societies to notify account holders of changes by letter.
He said the requirement to offer 'best advice' should be extended so that banks have to consider the merits of deposit-style accounts such as Tessas against life insurance-based investment products. Selling life insurance-based products is more profitable, so, Sir Bryan said, 'advice is obviously open to bias'.
Similarly, on mortgages, banks stand to make higher profits by selling endowment mortgages rather than repayment loans. Loans, like deposit accounts, fall outside the provisions of the Financial Services Act, which imposes a duty to offer 'best advice'. Sir Bryan recommended that the code should impose a duty to offer 'best advice' on mortgages.
He also wants to see notification of charges before they hit accounts. Lloyds is working towards pre-notification for small businesses, and considering it for personal customers. Barclays already does this for business customers, but says that there is no demand from personal customers.
The code applies only to personal customers, but Sir Bryan wants it extended to small businesses to bring it in line with the Banking Ombudsman.