Two major banks have admitted sending debt collection letters to customers purporting to be from independent firms of solicitors.

In replies to the House of Commons Treasury Select Committee, HSBC and RBS both acknowledged that they had previously adopted this practice for debt recovery.

Two further banks, Barclays and Santander, said they had previously undertaken in-house debt collection activity under separate brands.

The practice of sending letters purportedly from a firm of solicitors came to light earlier this year when payday lender Wonga agreed to pay compensation to recipients.

Subsequently, it emerged that Lloyds had sent letters to in-debt customers using the name ‘SCM Solicitors’.

Andrew Tyrie MP, chairman of the Treasury Committee, said: ‘These sample 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.’

The issue prompted the Solicitors Regulation Authority to warn in-house solicitors not to mislead third parties and take unfair advantage of customers' lack of legal knowledge.

In the letters, published today, RBS chief executive Ross McEwan said the bank had established an in-house solicitor firm called Green & Co and an in-house debt collection agency named Triton Credit Services. This practice began in the mid-1990s and was stopped earlier this year. McEwan said the intention was to ‘attract our customers’ attention’ to the consequences of not meeting repayments and to minimise costs by not using an external solicitors firm.

He added it was clear that this approach ‘did not meet my expectations or the standards I set for the business’, and that the letter had failed the bank ‘customer interest’ test.

Alan Keir, chief executive of HSBC, said the bank made use of an in-house firm called DG Solicitors. It was established in March 2001 and registered with the Law Society and latterly the SRA until HSBC chose to close it in February this year. Litigation is now carried out by HSBC Litigation Services.

Keir accepted it ‘would have been clearer’ for customers to not use a different legal brand named for work undertaken by solicitors employed by HSBC. ‘We acknowledge that the body of the letters, rather than the footer, could have stated that DG was an in-house firm of HSBC.’

Barclays chief executive Antony Jenkins said his bank had not sent letters purporting to be from law firms, but had used ‘alternative names’ for its in-house UK debt collection and recoveries activity, although this practice has now stopped.

Santander said until the late 1990s, mortgage debt recovery litigation undertaken by Abbey National (acquired by Santander in 2004) was conducted under the name of a qualified solicitor employed by the bank. Any litigation conducted on its behalf is through external law firms instructed by Santander, it said.