Britain’s biggest banks have admitted sending thousands of letters from fake debt collection agencies in a deliberate attempt to intimidate customers into paying up.

In a series of letters to the Commons Treasury committee, several of the biggest names in banking admit they have sent misleading letters to tens of thousands of customers who are struggling to repay their debts.  They now face the prospect of a full-scale inquiry by MPs, who have condemned the ‘menacing’ practice.  Andrew Tyrie, Tory chairman of the Treasury committee said: ‘These letters seem to have been designed to pull the wool over consumers’ eyes.

‘Many customers will have been understandably misled. What is more, from these responses it seems that this practice was widespread. Banks say that they have now stopped sending such correspondence but it should never have happened in the first place.’

Barclays chief executive Antony Jenkins acknowledged the bank had used a number of ‘debt collection brands’ to ‘encourage’ customers to settle their debts.  He appeared to acknowledge the practice was designed to intimidate, saying the letters were meant to indicate to customers ‘an escalation in the seriousness of the situation’ by suggesting that outside debt collectors had been called in. He said the aim was to ‘encourage the customer to re-engage’.

But he also claimed the use of other brands helped alert customers who had stopped opening letters from the bank that they were in trouble.

Royal Bank of Scotland chief executive Ross McEwan said the letters ‘reflect what had become a common industry practice in a sector that had come to put its own interests above those of its customers’.

Mr McEwan said the bank had established an in-house solicitor Green & Co to help it collect debts. It also used the brands Triton Credit Services and Tamarisk Debt Management to fool customers into thinking they were dealing with outside agencies.  Last year alone, Triton issued 423,000 letters to 119,000 customers, while Green & Co sent out a further 29,000 letters.

He said he would not try to defend the practice, which has now been stopped. But he said it appeared to have been used to ‘attract our customers’ attention to the adverse consequences’ of not paying their debts.

HSBC chief executive Alan Keir said the banking giant had used four separate in-house brands to suggest it had called in outside help in collecting debts.

Mr Klein said the practice dated back to 1985 and only stopped in July this year after it was exposed by the Press. Thousands of HSBC customers struggling with their debts received letters from DG Solicitors, Metropolitan Collection Services Central Debt Recovery Unit and Payment Services Bureau. In each case, the letter was actually from a part of HSBC, although this was only made clear in the small print.

Santander also admitted using a ‘separately branded identity’ when collecting debts, but insisted this had never involved posing as a legal firm.

Labour MP John Mann, a member of the Treasury committee, said it was clear that an inquiry was now needed into a practice that was ‘obviously designed to intimidate people’.

Public anger over the practice erupted earlier this year when payday loan firm Wonga was ordered to ordered to pay £2.6 million in compensation to 45,000 customers last month, following an investigation by the Financial Conduct Authority (FCA).

The City of London Police are now investigating whether Wonga may have breached a number of laws, including the Theft Act and the Administration of Justice Act which outlaws the harassment of debtors.

The move came after it emerged that Wonga, which charges interest of up to 4,000 per cent on loans, sent letters in the names of two fictitious law firms in a bid to pressure customers into settling their debts.

It has since emerged that the practice is widespread among financial institutions, utilities and even some public bodies, such as the Student Loans Company, which has now stopped.

By Jason Groves