The new Consumer Minister, Jo Swinson has criticised banks over financial inclusion after the Co-op withdrew basic bank accounts for people who have recently been made bankrupt.
The Co-op’s decision means that Barclays is the only choice for undischarged bankrupts in the 12 months following bankruptcy.
Ms Swinson said: "The withdrawal of a basic bank account for undischarged bankrupts is disappointing news. Removing options, where there is already limited choice, will only harm those needing access to basic banking services.
"This should be an opportunity for banks to look again at this issue and work with government to make some real progress."
Most people who have recently been made bankrupt are only allowed to open basic bank accounts until they rebuild their credit history. These accounts are free and do not offer overdrafts. Customers can withdraw cash and pay in deposits but not all have a debit card or cheque book.
Yesterday, the Co-op said it was withdrawing its Cashminder account. The bank said that all banks need to work equally to offer help to people who are financially excluded. The Co-op said this created an "unlevel playing field". The Co-op said that more than 100,000 of its 330,000 basic bank account customers were in receipt of a debt management order, a much higher ratio than most other banks.
The decision does not affect people who have already opened the account.
Its decision seems to point to the fact that the Co-op does not believe all banks are working equally.
The British Bankers Association defended the Co-op’s actions saying that by taking on bankrupt customers banks could lead themselves open to challenges from an account holders creditors.
The BBA said: "Banks who accept bankrupt customers open themselves to potential legal challenges from their customer's creditors, who could have a legal claim to money passing through the account."
However, consumer groups criticised the decision saying that it would hit the poorest hardest.
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."
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."