Banks have come under attack for taking a ruthless and short-sighted approach to customers who run into financial trouble.

A National Consumer Council report compared their stated policy with the testimony of advice workers who deal with consumers facing financial hardship.

It said that in recent years, banks had infringed their own policies by treating hard-up customers in an unreasonable or intimidatory manner.

NCC chairman David Hatch commented: "Life's upsets and upheavals - divorce, illness, unemployment - hit consumers in the pocket as well as in the face.

"Even the good things in life, like a new baby or a family wedding, can leave you suddenly strapped for cash.

"It's at these crucial times that customers too often find their banks at their most obtuse and unhelpful. A temporary shortage of cash spirals into a vicious circle of overdrafts, extra charges and bounced cheques."

He added: "It's a hard fact of commercial life that banks have to make money and no-one is asking for free handouts.

"But putting people in a position where they may lose their home or be unable to pay essential bills simply prevents them becoming solvent again. That doesn't help the bank or the customer.

The report claimed a disturbing gap existed between banking policy and practice.

While banks asked customers in financial trouble to contact them early, it said their attitude was often intimidatory.

Threats of court action, excessive charges for services such as letters and the withdrawal of cheque facilities, making utility bills more expensive, can all add to customers' problems.

And it said there appeared to be little or no expertise at local branch level in dealing with debt cases.

The report also pointed out a conflict of interest between the banks' dual roles of lending money and acting for the customer.

They were often guilty of prioritising their own debts ahead of essential payments such as mortgages and utility bills.

Brian Capon of the British Bankers' Association dismissed the criticisms.

"Our view is that the NCC has missed the boat. The report does not accurately represent what's happening now."

He said much of their research was based on the 1994 code of practice which had been superseded by the 1997 code.

"That gives a clear commitment from the banks to treat people in financial difficulty sympathetically and to liaise with debt counselling organisations."

The NCC believes the new Financial Services Authority should require all banks to subscribe to the code of practice as part of their licence conditions, although the BBA pointed out all the retail banks subscribed to the code already.

It would also like to see the British Bankers' Association amend the code so that customers are not subjected to undue pressure and banks take account of a customer's full financial circumstances.

And sanctions should be introduced where a bank or building society fails to comply with the code.
 

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