The chief executive of Egg, the internet bank accused of unfairly withdrawing credit cards from thousands of responsible customers, has resigned.

Ian Kerr, who has headed Egg since November 2006, will be replaced by Bert Pijls, the country manager for Citigroup, Egg’s parent company, in the Czech Republic.

Egg last month sent out an unexpected warning to 161,000 card users saying it would end their agreements in 35 days because they had a “higher than acceptable risk profile”. The cards were withdrawn on Thursday last week.

The lender – which denied Mr Kerr’s resignation was related to the move – is desperate to offload risky borrowers in the midst of the credit crunch, after Citigroup was left exposed to bad debts in the US sub-prime crisis.

However, Egg has even blocked some borrowers with perfect credit histories from using their cards.

Experts said the bank, which has 2.3 million card customers, was effectively penalising these borrowers for being good with their money because they were not profitable customers, and that other banks are likely to follow Egg’s lead.

Labour MP Nigel Griffiths, a former consumer affairs minister, who has been highly critical of Egg’s actions, said: “I don’t believe in pointing the finger . . . and I have not been seeking Ian Kerr’s resignation. But I think it gives a clear warning to all banks and credit card lenders that they must be frank with customers.

“I don’t feel Egg realised the enormity of the communications disaster they were presiding over by withdrawing cards from 160,000 customers. Egg is a sad lesson to others that they cannot withdraw credit cards from responsible customers without those customers screaming blue murder.”

Mr Griffiths has complained to the Financial Services Authority which has since passed the matter on to the Office of Fair Trading.

Mr Kerr, the former HBOS retail banking head, was also the head of UK consumer banking for Citigroup, which bought Egg from insurer Prudential last May.

George Awad, Citigroup’s consumer chief executive for Europe, the Middle East and Africa, said he was disappointed to lose Mr Kerr, but respected his decision.

“Ian has played a critical role in helping us to integrate the Egg business into Citi and he has also developed our strategy for a single unified business in the UK,” he said.

“Ian has established a very mature and experienced team to execute this strategy, helping us to build a new force in retail banking in the UK.”

Mr Pijls will move to London this month from the Czech Republic where he turned the consumer franchise around with high double-digit year-on-year growth, according to Citigroup.

Mr Awad said Mr Pijls would continue the strategy to develop Citigroup’s UK consumer operations.

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