Royal Bank of Scotland has admitted mis-selling loans to business customers under the taxpayer-backed Enterprise Finance Guarantee (EFG) scheme.
The blunder was revealed after the bank reviewed EFG customer files following complaints from small firms and discussions with the British Business Bank, the Government body overseeing the scheme.
“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,” RBS said.
The bank, which is 80 per cent owned by the Treasury, now plans to implement 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.”
As the biggest user of the scheme, RBS has loaned more than £900 million to 9,000 small firms since EFG was set up in 2009 to help businesses who would otherwise find it difficult to access credit.
The Financial Conduct Authority has been made aware of the issue and will remain in dialgogue with RBS during its review.
The EFG scheme provides a 75 per cent Government guarantee to lenders willing to back viable small businesses lacking the security to obtain a bank loan. Some RBS customers, however, were incorrectly led to believe that the guarantee was for their benefit rather than the bank’s. Such customers did not realise that they remained liable for 100 per cent of the loan, and in some cases only discovered that they were liable for the full sum upon defaulting.
RBS will now begin to contact around 1,800 customers who took out an EFG loan that have either defaulted or found themselves in a ‘stressed’ financial position, the bank said. A helpline will also be available for those with concerns.
The bank indicated that taxpayer money claimed inappropriately as a result of the mis-selling would be returned, to ensure that “neither our customers nor the Government are adversely impacted by the issues identified”. RBS went on to say that it believes the impact of this mishap on it will be small, since it has already accounted for firms who defaulted, typically having never recovered more than 25 per cent of their loan .
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.
RBS has also been accused of pushing firms to the wall so it could buy back their assets at rock-bottom prices.