The country's banks and building societies yesterday launched a tougher banking code which claims to stamp out abuses such as lowering interest rates on existing savings accounts while failing to tell customers of new accounts with better rates.
The code was introduced after a furious protest by customers of Northern Rock, the newly converted building society. Customers were shocked to learn they had been switched into new accounts with different notice periods and, in many cases, lower interest rates.
Some banks are also alleged to have told staff not to let customers know about new accounts with better interest rates, allowing them to pay lower interest to millions of customers on accounts they deemed "obsolete". The practice, known as portfolio management, can save banks millions of pounds a year.
The code claims to ban the use of obsolete accounts. It requires banks to raise interest rates on existing accounts to the same level as a new account - but only if it is "similar" to the old one. If it is not similar, they must write to customers offering the opportunity to switch.
But industry figures warned that banks can circumvent the rules by tweaking the terms on new accounts so they are not "similar". Customers may also fail to respond to letters about the terms of their accounts.
Brian Davis, chief executive of Nationwide, said: "The danger is that it will legitimise the use of obsolete accounts. Because you have written to people and told them you have done it, it will be considered OK. But the principle is that you shouldn't do it in the first place."
Although the code was welcomed as "a step forward", others also warned it could be abused in practice.
David Anderson, chief executive of Yorkshire building society, said banks and building societies "must go with the spirit as well as the letter of the code. Some people will try it on but I am sure people will be watching."Reuse content