Confusion reigned this week over which customers of Lloyds TSB and Royal Bank of Scotland (RBS) would be switched to new businesses when parts of the Government-backed banks are sold.

The two banks have been forced to sell parts of their business to satisfy European competition laws. RBS will sell 318 branches and Lloyds will dispose of more than 600 branches in the next four years. As a result, 1.7 million RBS and NatWest current account customers, and up to four million Lloyds customers, will be moved to a new provider. Homeowners with Cheltenham & Gloucester mortgages, savers with Intelligent Finance and insurance customers of Direct Line, Churchill and Privilege will also be sold to the highest bidder.

However, details about the break-ups remain sketchy, with banks and the Government giving out mixed messages. RBS and Lloyds say customers will be moved automatically, but this week Alistair Darling, the Chancellor, said: “We can’t compel a customer to move banks. We’ll be writing to customers and giving them a choice about what happens for each product.”

Dominic Lindley, of Which?, the consumer watchdog, said: “Consumers are understandably confused about what’s going on. There needs to be more transparency over how this process is going to work. How much notice will customers be given before the banks are sold off? Will their new provider be able to change the terms and conditions of their accounts? There are no satisfactory answers.” Here Times Money explains how the changes are likely to affect you.

RBS and NatWest

RBS is set to disappear from high streets in England and Wales, with all the branches up for sale, as well as all NatWest branches in Scotland. This will affect 1.7 million customers and 230,000 small or medium-sized businesses — about 11.3 per cent of the banking giant’s 15 million customers.

In deciding which customers are sold, the key criterion will be the sort code on a customer’s chequebook or debit card. If that branch is included in the sale, the customer will transfer with the branch.So, an RBS customer who opened an account in Scotland but uses a branch in London will not be transferred to a new provider — but he or she will not have access to an RBS branch in England. RBS was unable to confirm this week whether its customers in England would be able to use NatWest branches instead.

The RBS Williams & Glyn’s brand name, which was phased out 24 years ago, is also up for sale. Any customers who opened their account with Williams & Glyn’s before it merged with RBS in 1985 will also be transferred. A new player in the market may wish to adopt the Williams & Glyn’s brand to add creditability, but if a high street bank such as Tesco buys the branches, it is not likely to bother with the old name.

While a buyer is found, all branches will stay open and telephone and internet banking will operate as normal. RBS says it is “business as usual”. A spokesman added: “We will seek to ensure that any disruption associated with the restructuring is minimised and will keep our customers fully informed as the sale proceeds.”

For RBS and NatWest mortgage customers, a spokesman said it “remained unclear whether or not the new provider would be able to change customers’ terms and conditions”. However, the Financial Services Authority told Times Money that the new provider would be unable to change a fixed-rate mortgage deal until it expires — but that it could change the interest for its new customers on standard variable rates.

Lloyds, Cheltenham & Gloucester and Intelligent Finance

Customers who bank at the following Lloyds branches will be transferred: all 185 Lloyds TSB Scotland branches; all 164 Cheltenham & Gloucester branches; and 250 Lloyds TSB branches in England and Wales, although it is not clear which ones yet. As with RBS, the decision will be determined by a customer’s sort code (which shows his or her specific branch).

Lloyds says it will not identify the specific England and Wales branches until the sale begins — so millions of people may be given relatively short notice that they are about to switch to a new bank.

A spokesman for Lloyds said: “When a sale is agreed we will ensure that the transfer of customers is handled with sensitivity and care and that any disruption is minimised. Until that time, it is very much business as usual.”

Neither Lloyds nor RBS will encourage customers affected by the sales to stay with their existing bank, because under the European rules both banks must reduce their market share of customers.

The Lloyds spokesman added: “We cannot take specific action to encourage customers to stay. However, customers will be free to move their accounts at any time as they are today, including back to Lloyds if they wish.”

About 600,000 Cheltenham & Gloucester (C&G) and Lloyds mortgage customers will be affected by the branch sales — about 19 per cent of their three million mortgage borrowers.

Lloyds says that the buyer will have to honour the existing terms and conditions of mortgage contracts, including C&G’s guarantee on its standard variable rate that the interest cannot be more than 2 per cent above the Bank of England base rate. This also means that those with fixed-rate mortgages are unlikely to see any change until their deal expires.

Intelligent Finance (IF) customers will continue to have access to their accounts via the internet and phone. Once the sale has been agreed, IF customers will be transferred to the new owner — but again, it is impossible to say at this stage whether they will be better or worse off.

RBS insurance and motor breakdown customers

All of the RBS insurance brands will be sold. RBS has about 17 million insurance policies in place through Direct Line, Churchill and Privilege, including car, home and life policies. Businesses who bought insurance from NIG, and motorists whose breakdown cover is with Green Flag, will also be affected.

Again, RBS says it is business as usual for insurance customers until a buyer is found, when all customers will be automatically passed to the new insurer. It is thought that RBS and NatWest will continue to sell insurance in branches alongside products such as mortgage payment protection insurance, but it is unclear who will underwrite the policies.