Royal Bank of Scotland has admitted mis-selling loans to small business customers under a taxpayer-backed scheme in the latest embarrassing blunder for the state-backed group.
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RBS has loaned more than £900 million to 9,000 small firms, who did not have enough collateral to secure a normal bank loan, under a government-backed scheme to encourage more lending called Enterprise Finance Guarantee (EFG).
But the bank admitted it was not made clear to some customers that the 75 per cent government guarantee on loans was for the benefit of the lenders – not the businesses themselves should they hit the buffers.
It emerged yesterday that some customers were incorrectly led to believe they would only be liable for 25 per cent of the debt if their businesses collapsed. In reality, small firms remained liable for the entire bank debt they had taken on.
The situation provoked complaints from small and medium sized firms (SMEs) last year and led to talks between RBS, 81 per cent owned by the state, and British Business Bank, the government body overseeing the scheme. RBS said it had subsequently reviewed a sample of its EFG customer files.
“This exercise identified a number of instances where we have not properly explained to customers how borrower and guarantor liabilities work under the EFG scheme,” the group said.
“We will now be implementing a thorough and proactive review of affected and potentially affected customers to ensure they are put back in the position they believed they would have been in.”
It is understood that in some cases small firms only found out their true, more perilous position when they defaulted on the loans.
Colin Borland, the Federation of Small Businesses’ head of external affairs in Scotland, said: “It is disappointing to see another mis-selling episode involving small businesses and the banks. RBS needs to move quickly to take care of these small business customers.”
Britain’s financial regulator, the Financial Conduct Authority, confirmed yesterday that it had been made aware of the issue.
Business Secretary Vince Cable said he had asked that RBS put the situation right “as quickly as possible”.
Chukka Umunna, Labour’s shadow business secretary, called for a wider investigation into the EFG to establish how widespread its mis-selling had been.
“After the series of scandals we’ve seen in recent years, it is hugely concerning that we seem to be looking at yet another instance of firms being mis-sold products by banks, and in this case taxpayers’ money is also at stake.”
RBS said it would now contact about 1,800 EFG customers who took out a loan under the scheme and either defaulted or found themselves in a “stressed” financial position. It has also promised that any taxpayer money claimed wrongly as a result of the mis-selling would be returned.
The bank said it remained committed to the EFG, with Alison Rose, head of commercial and private banking, saying it was “hugely important” in helping many businesses to continue to trade.
The bank has had a torrid time with regulators recently and has been fined hundreds of millions of pounds.
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