Co-op account withdrawal criticised

People recovering from bankruptcy will be deprived of a choice of current accounts after the Co-operative Bank closed the door to new applicants.

The Co-op's decision to stop its basic Cashminder account from taking on undischarged bankrupts leaves Barclays as the only bank to offer such a service.

The mutual, which will continue to offer the account to existing customers, blamed its decision on a lack of competition from rivals, which meant its share of the market was rising and left it struggling in an "unlevel playing field".

But consumer groups said the decision would hit the poorest hardest and called for minimum standards to prevent "a race to the bottom" on basic accounts.

Sarah Brooks, director of financial services at Consumer Focus, said: "Not having a bank account can make it hard to participate in modern Britain and can create financial problems for the households who can least afford it. Minimum standards are needed to stop a race to the bottom on basic bank accounts, and we need to see action from the banks and Government to make this happen."

There are nearly a million people without a bank account in the UK and the Co-op's move marks a "backward step", undoing some of the industry's efforts to reduce this figure, she added.

The situation is becoming increasingly urgent because a new universal credit system due to be introduced next year is expected to require recipients to have a bank account to receive benefits.

But the Co-op said nearly a third of its 330,000 basic account customers had some kind of debt management order, more than its natural market share.

John Hughes, managing director of retail banking at the Co-op, said: "Across the industry there has long been an unlevel playing field in the provision of basic bank accounts, with our bank doing far more than most, and we have been calling for some time for this to be addressed. Unfortunately it has now come to the stage where our disproportionate market share of the basic bank account market has continued to grow significantly, and regretfully we now need to take steps to address this."

It has called for an industry-wide agreement to make all banks cater for undischarged bankrupts, at which point it will consider reversing its decision.