Minister warns banks against 'soaking' public

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THE Government has warned Britain's big high-street banks against 'deliberately soaking the customer' to compensate for past lending mistakes that have run them into heavy bad debts.

Neil Hamilton, the corporate affairs minister, yesterday told the Institute of Credit Management that there was a 'very real risk' that banks and other institutions that made big losses as a result of mistaken lending decisions in the 1980s would try to recoup those losses as quickly as possible by raising charges to customers.

'If such an approach is now being either practised or considered, I very much hope that those involved will think again,' Mr Hamilton said.

'A policy of deliberately soaking the customer to offset past mistakes is not only unethical, it can only damage the financial institutions themselves in this country,' he added.

A spokesman for Barclays Bank, which last week reported a 1992 pre-tax loss of pounds 242m, but increased income on fees and commissions, said: 'We are operating in an extremely competitive area. If we were to attempt to recoup our losses by soaking customers we would soon lose them. We are obviously not doing that.'

Mr Hamilton said that the jury was still out on whether there was a need for tough new regulations on credit marketing. If the Government decided legislation was needed, 'we will not hesitate to proceed', he said.

He also cautioned lenders against taking debtors to court too easily, creating credit casualties for up to six years.

Also at the conference Sir Bryan Carsberg, director-general of the Office of Fair Trading, said the OFT was considering whether to give small businesses, as users of credit and hire-purchase services, the same credit protection covering consumers.

'At the moment, unincorporated businesses are treated much like private consumers but limited companies, however small, are excluded,' Sir Bryan said.

The fact that large partnerships such as John Lewis had credit protection and small limited businesses did not seemed an anomaly, he said.

The OFT review, which is also looking at simplifying credit rules, is likely to be complete in the autumn