The fast-growing digital bank Monzo has toppled First Direct from its near decade-long reign as Britain’s best-rated lender, according to a Which? annual survey.

But it was a bittersweet triumph for Monzo after it was forced to defend the potential involvement of overdrawn customers in its £20m crowdfunding drive. The bank, which has grown exponentially since its launch in 2015 but is making heavy losses, was accused of allowing its customers to borrow from the bank using its overdraft facility to buy shares.

In its prospectus for the unlisted shares, Monzo said: “Applicants must have enough money in their Monzo account at the time of application to pay for any shares that they seek to buy. Applicants are able to use their overdraft for this payment.” This was followed by a warning that overdrafts are subject to charges.

Companies are banned from granting loans to their customers to buy their own shares – rules put in place to avoid the creation of false markets – although the use of overdrafts is not covered by the rules.

Many of Monzo’s 1.2 million customers are young and unfamiliar with share trading, particularly in unlisted shares such as the crowdfunding offer. But the bank’s founder, Tom Blomfield, said: “The claim that Monzo has a specific ‘overdraft offer’ which ‘lends customers money to buy its shares’ is just not true. On this basis, literally every publicly listed UK bank lends customers money to buy its shares.”

The row, first reported by the Times, overshadowed Monzo’s customer satisfaction success. Since Which? began its banking consumer satisfaction survey in 2010, First Direct had always topped the table. But in the first year that Monzo had enough customers to be part of the survey, it edged ahead.

Monzo scored 86% in the Which? survey, compared with 85% for First Direct. TSB slumped from fourth to joint last in the table following a turbulent year of IT failings, a position it shared with Bank of Ireland.

Nationwide Building Society (79%) finished third and Metro Bank came fourth (76%), meaning challenger banks finished in two of the top four spots.