High street banks have been sending out letters demanding the repayment of overdue loans under the name of in-house solicitors made to appear as third parties, a media report revealed on Friday.
The letters are usually sent under a different brand name and a different address to that of the banks, meaning they could be easily mistaken as debt collection threats from a separate entity.
None of the in-house firms are regulated by the Solicitors Regulation Authority (SRA), according to The Guardian, which reported the issue.
However, the practice, which has prompted a number of complaints to the SRA for being confusing, deceptive, and tantamount to harassment, is legal because the letters are signed by regulated solicitors. They also carry small print which identify the firms as in-house.
Nonetheless, the SRA agreed there was "cause for concern" and is expected to update its guidelines on the issue.
Chairman of the Commons Treasury select committee, Andrew Tyrie MP, said in a statement: "Customers should know who they are dealing with it seems they may not have done. I will be writing to the banks for clarification."
According to The Guardian, Royal Bank of Scotland (RBS) uses Telford-based Green & Co Solicitors, Lloyds Bank uses Hove-based SCM Solicitors, and until the start of the year, HSBC sent letters out under the name of its in-house lawyers, DG Solicitors.
It comes after controversial pay day lender Wonga was last week forced to hand over £2.6m in compensation to customers after faking letters from made up law firms. The Financial Conduct Authority (FCA) ordered the "straight talking money" company, which is the biggest of its kind, to pay the compensation to 45,000 customers.
On Thursday, RBS revealed it had undertaken a review of its own communication practices and said it had put an end to its practice of using brand names that risk causing customers confusion.
Lloyds Banking Group said in a statement that an in-house debt recovery agency it had been using, BOS, stopped operating last November and it decided earlier this year to phase out the use of SCM.
A Lloyds spokeswoman said: "We continue to simplify our business to ensure we support our customers in the most simple, straightforward and transparent ways possible."
For its part, HSBC said that all customer letters from DG Solicitors, its now closed in-house legal firm, "were compliant with the Office of Fair Trading debt recovery rules and made it clear that it was HSBC's in-house firm of solicitors and that its people were HSBC employees".
It confirmed it had stopped using DG Solicitors, which was regulated by the SRA, in January of this year and said legal correspondence to customers was now under the HSBC brand.
A spokesperson from the company explained the company had only contacted customers "at the point of litigation" - rather than about possible future litigation.