The Royal Bank of Scotland and its NatWest subsidiary have been fined a record £2.8 million for "unacceptable" mishandling of customer complaints.
The state-owned high street chains — rescued in a £20 billion bail-out in 2008 — were guilty of "multiple failings" when responding to thousands of unhappy customers.
The main faults were delays, poorly-run investigations and inadequate explanations.
Major changes were needed said the Financial Services Authority which imposed the biggest ever fine for a British bank over the handling of complaints. It came as Barclays boss Bob Diamond appeared before MPs to be questioned about bonuses to staff.
RBS UK Retail owns the Royal Bank of Scotland and NatWest chains and has 15 million customers.
The FSA found that almost two thirds of responses to dissatisfied customers were not made within the specified time limit of eight weeks. Customer were also not told of their right to take their concerns to the Financial Ombudsman.
Around half the complaints were poorly handled by staff who had been given "inadequate" training and did not obtain the information they needed before being able to make an informed decision.
As a result almost a third of customers who complained were not treated fairly. The FSA also found that staff who were supposed to monitor complaint handing were "ineffective in assessing whether customers were being treated fairly".
The problems came to light during the FSA's review of the high street banks complaint handling last year. Officials found growing evidence of a systemic failure at RBS and decided to investigate further.
It looked at thousands of files relating to cases throughout 2009, shortly after RBS was rescued from collapse by the Government.
Margaret Cole of the FSA said: "We expect firms to treat customers fairly and that consumers can be confident that their complaints will be dealt with properly. The failure of these two high street banks to deal adequately with complaints put consumers at unacceptable risk."
