RBS admits mis-selling loans
Royal Bank of Scotland has admitted mis-selling loans to business customers under a taxpayer-backed scheme in the latest embarrassing blunder for the state-backed group.
RBS has loaned more than £900 million to 9,000 small firms since the Enterprise Finance Guarantee (EFG) was set up in 2009 to help businesses who would otherwise find it difficult to access credit. It is the biggest user of the scheme.
But following reported complaints from small firms and discussions with the British Business Bank, the Government body overseeing the scheme, it reviewed a sample of EFG customer files.
The bank, which is 80% owned by the Treasury, said: "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.
"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."
The Financial Conduct Authority confirmed that it had been made aware of the issue and said it would remain in dialogue with RBS during its review.
Shadow business secretary Chuka Umunna called for a wider probe into the EFG to establish how widespread mis-selling had been in relation to the scheme and said the episode had raised questions about what ministers had done to resolve the problem.
Business secretary Vince Cable met RBS executives yesterday to discuss the issue, previously exposed in an investigation by The Times newspaper.
It is reported to have contributed to the departure of deputy chief executive Chris Sullivan last month. RBS is now running an "accountability review" meaning other senior roles could be at risk.
The affair is the latest damaging episode related to the lender's treatment of small business customers after it was previously accused of pushing firms to the wall so it could buy back their assets at rock-bottom prices.
RBS has also been rocked by scandals including foreign-exchange rate rigging, which saw it fined £399 million, following on from the earlier Libor fixing affair, as well as recently getting its sums wrongs in a regulatory test of its capital strength.
The latest issue centres on the EFG scheme, which provides a 75% Government guarantee to lenders willing to back viable small businesses lacking the security to obtain a bank loan.
Some RBS customers were incorrectly led to believe that the guarantee was for their benefit rather than the bank's - and did not realise that they remained liable for 100% of the loan.
In some cases they only discovered when they defaulted that they remained on the hook for the entire outstanding sum.
RBS will now begin to contact around 1,800 EFG loans customers who took out a loan under the scheme and either defaulted or found themselves in a "stressed" financial position.
The bank said it remained committed to the scheme which it said had backed thousands of firms that otherwise would have struggled to access credit, thereby safeguarding jobs and contributing to the economic recovery.
Alison Rose, head of commercial and private banking, said: "EFG is a hugely important scheme that has helped many businesses continue to trade today.
"This is why it is so important that our staff adhere to the highest standards to ensure that customers fully understand the features of the product. I am not satisfied that we have met those standards in all cases."
She said any customers found to have been affected would be contacted directly by the bank while a helpline would be available to those with concerns.
RBS would ensure that "neither our customers nor the Government are adversely impacted by the issues identified" indicating that taxpayer money claimed inappropriately as a result of the mis-selling would be returned.
The bank believes the likely impact on it will be small as it will already have accounted for firms who defaulted, typically having never recovered more than 25% of their loan - the amount customers wrongly believed their liabilities were limited to.
Mr Umunna said: "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.
"We urgently need to know how widespread mis-selling has been in relation to this taxpayer-backed scheme."
Vince Cable said he was "extremely disappointed" that RBS had "misused" the EFG scheme and that he had met senior management to discuss findings of the review which he had ordered last August through the British Business Bank.
He added: "I have asked that RBS puts the situation right as quickly as possible, so that neither RBS customers nor taxpayers are adversely impacted."
The EFG has helped support 23,000 businesses through £2.3 billion of loans since its launch in 2009.