RBS admits mis-selling millions of pounds of business loans to SMEs


In what appears to be another damning blow to the part tax-payer owned bank, it has admitted mis-selling government-backed loan schemes set up in 2009 to help firms who would otherwise find it difficult to find credit.

The mis-selling was uncovered after complaints that the scheme was not properly explained to borrowers and came to light after complaints from customers were made to the then Entrepreneur in Residence at the Department of Business, Innovation and Skills, Lawrence Tomlinson.

Tomlinson investigated the issue publishing the Tomlinson report which prompted discussions with the British Business Bank that oversees the scheme.

RBS has lent more than £900m to 9,000 small firms since the EFG scheme began is the biggest user of the EFG scheme.

It is designed to provide a 75 per cent government guarantee to lenders to encourage them to back small businesses without enough security for a standard bank loan.

Some RBS customers were led to believe the guarantee was for their benefit, rather than to increase banks’ willingness to lend, and did not realise they remained liable for all of the money.

In a statement RBS say that they reviewed a sample of EFG customer files and said the 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 bank said it would 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 has been informed of the issue and will remain in dialgogue with RBS during its review.

Some RBS customers 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.