MANY SMALL business owners who have been treated “appallingly” by their banks are being denied justice because Britain lacks an independent financial services tribunal, according to a senior figure at an influential parliamentary group.
Kevin Hollinrake MP, the vice chairman of the All Party Parliamentary Group for Fair Business Banking, said that misconduct involving the big banks has harmed tens of thousands of small businesses. However, most of the victims cannot seek compensation because the banks are too big to be sued, Mr Hollinrake said.
Mr Hollinrake, who is the Conservative MP for Thirsk and Malton, is calling for the creation of an independent tribunal to oversee complaints about the banks from SMEs (small-and-medium-sized enterprises).
His comments follow recent criticisms of major banks for implementing branch closures which have harmed rural communities.
What happens when a community loses all of its bank branchesMr Hollinrake said: “In my own experience, banks generally treat businesses fairly and reasonably. However, recent high-profile business banking scandals at RBS and Lloyds/HBOS have highlighted clear contraventions to the Financial Conduct Authority’s (FCA) regulatory requirement that banks pay due regard to the interests of its customers and treat them fairly.”
He praised the work of Yorkshire businessman Lawrence Tomlinson, who, as an adviser to the Business Secretary in 2014, compiled a dossier alleging that RBS deliberately destroyed small businesses to make a profit for itself.
Mr Hollinrake added: “The report that followed revealed the systematic mistreatment of small firms in their rescue division. The trouble is that there is no effective means of redress for the mistreated - not only are banks too big to fail, for most of us, they are also too wealthy to sue.”
Many complaints relate to the alleged mis-selling of a complex loan, called an Interest Rate Hedging Product, or IRHP.
Mr Hollinrake added: “The loan is ultimately deemed to have been ill-designed and mis-sold by the FCA and the bank’s own redress process but, incredibly, they will only refund the costs of the loan and refuse to compensate you for the consequential loss of your life’s work: your business.
“This is exactly what happened to my constituents, Jon and Kerry Welsby,’’ said Mr Hollinrake. “They started their business in 2003, were sold an IRHP by Lloyds Bank in 2008, the monthly costs of which rose from £6,974 to £17,555 in little more than two years, finally leading to business failure in 2011. EY and Begbies Traynor were appointed as administrators who soon concluded that the bank caused the insolvency of the business.
“Despite FCA regulatory requirements that the bank should return the business back to its position prior to the actions which caused the damage, it refuses to do so and offered compensation only for the cost of the loan. The only route open to Mr and Mrs Welsby is to take the bank to court, a hugely expensive and unattractive process for most.”
”Most banks, including Lloyds and their subsidiary HBOS, and RBS, all admit serious transgressions of one form or another, the latter, on a gigantic scale, through its Global Restructuring Group which operated from 2005 to 2013 and at its peak handled 16,000 companies.
“The FCA report highlighted GRG’s “inappropriate action” such as interest charges being raised or unnecessary fees added to 92 per cent of previously viable companies.”
Mr Hollinrake added: “I have met many business people who have been treated appallingly by their banks and are determined to open up an affordable route to justice. I pay tribute to their tenacity, strength and resolve.”
Mr Hollinrake said the APPG for Fair Business Banking is calling for an independent tribunal to oversee complaints, which would work in a similar way to the tax or employment tribunal systems.
He added: “There already is a Financial Services Tribunal which operates for the wholesale markets. It is run by Her Majesty’s Courts and Tribunals Service and all it would need is an expansion of capacity of an existing chamber or the creation of a new one by statutory instrument.
“Banks would pay for it so it would be much cheaper for the claimant to bring an action and they would not have to pay the bank’s legal costs if they were unsuccessful. The banks will save money by transferring funding from the one-sided internal redress scheme they presently operate and they will lend more as demand for business loans would inevitably increase as confidence between banks and business returns.”
Commenting on Mr Welsby’s case, a Lloyds spokesman said: “As the matter is subject to ongoing legal proceedings it would be inappropriate to comment, except to state that Lloyds Banking Group believes the matter to be without merit and it will be contested vigorously.”
A HM Treasury spokesman said: “It is important that small and medium sized enterprises (SMEs) have access to the appropriate forum to address their concerns with the financial services that they have received. We therefore welcome the FCA’s continued work to support small business, and their proposed consultation on giving larger SMEs access to the Financial Ombudsman Service. We will consider the FCA’s findings when they are published.”
A spokesman for Royal Bank of Scotland said the regulator confirmed that the most serious allegations made against the bank’s Global Restructuring Group (GRG) had not been upheld.
The spokesman added: “We have acknowledged for some time that mistakes were made and have apologised that we did not always provide the level of service and understanding we should have done for these customers in the aftermath of the financial crisis. The regulator has again confirmed that the remediation steps we announced to address concerns for customers are appropriate. Any customer who feels they were treated inappropriately whilst in GRG should make use of the complaints process.”