The Financial Conduct Authority (FCA) has said that business owners who were mis-sold tax-payer backed Enterprise Finance Guarantees (EFGs) by the Royal Bank of Scotland (RBS) may be eligible to submit a complaint for financial redress to the new Banking Dispute Resolution Scheme (even if the complaint has already been heard by RBS’s own compensation process).
The FCA also expects the new dispute resolution service to accept a large number of complaints from SMEs mis-sold business loans by Clydesdale Bank (formerly known as Yorkshire Bank and soon to be re branded as Virgin Money).
The Business Banking Resolution Service (BBRS) is due to be launched at the end of 2019. However, organisations such as the SME Alliance have withdrawn support for the service over concerns that its’ eligibility criteria will bar many businesses from redress on jurisdictional grounds.
What is the Business Banking Resolution Service?
The Business Banking Resolution Service is an alternative redress service for businesses that have been victim to banking misconduct. Seven leading UK banks have voluntarily accepted the proposals outlined in the UK Finance- commissioned Walker Review, creating an alternative to legal action, the Financial Ombudsman Service and bank-run compensation schemes for SMEs mis-sold complex derivative products.
When will the Business Banking Resolution Service start?
The new banking dispute resolution scheme offering businesses mis-treated by Banks an alternative route to financial redress is due to be announced by the end of 2019.
Customers who have been mis-sold loans by RBS, Lloyds, Clydesdale, Barclays et al should seek legal advice as soon as possible (before the scheme is announced) to consider whether legal redress is an option before your claim becomes time-barred.
What is an Enterprise Finance Guarantee Loan?
The Enterprise Finance Guarantee scheme is a loan guarantee scheme that was set up by the Government in November 2008 to encourage banks to lend to businesses who had insufficient security to obtain normal commercial lending.
How do EFGs work?
Under the Enterprise Finance Guarantee loan scheme, the Government agreed to guarantee 75% of the value of each individual loan, but had no involvement in lending decisions, which were entirely at the prerogative of the lender banks. The EFG loan scheme has been available through many lenders, including Barclays, Clydesdale, Yorkshire, HBOS, HSBC, Lloyds, RBS/NatWest, Bank of Scotland and the Cooperative Bank.
Have I been mis-sold an EFG loan?
It has been reported that there are a number of serious issues in relation to how banks sold Enterprise Finance Guarantee loans to their customers. Many banks failed to explain to their customers that, for each individual EFG loan, the customer would remain responsible for repaying 100% of the EFG loan (and not just the 25% of the EFG loan that was outside of the Government’s guarantee). Consequently, many customers did not realise that their liability to their bank was greater than anticipated and that the EFG loans served primarily to protect banks from the risk of loan default rather than borrowers.
Furthermore, despite having the security of a 75% guarantee from the Government, many banks obtained charges over their customers’ primary private homes or arranged personal guarantees for the sole or main purpose of guaranteeing the 25% of the EFG loan not guaranteed by the Government, even though the banks were expressly prohibited from seeking these forms of additional PG or charged security by the rules of the EFG scheme.
What is the RBS EFG Review Scheme?
This was RBS’s own purportedly “independent” review into whether EFG loans were mis-sold to its customers. RBS’s review purportedly examined whether RBS properly explained borrower and guarantor liabilites to EFG customers.
LEXLAW’s position at the time the review was announced in 2015 (and still is for Bank-run reviews) is that customers should take independent legal advice and make detailed and authoritative written submissions via their lawyers rather than submitting to what is in effect a “partisan” review by RBS itself.
I have been through RBS’s EFG Review Scheme, can I still bring a complaint to the BDRS?
Details have yet to be announced but it is understood that the FCA expects that some complaints from eligible companies that have been through RBS’s review scheme may have grounds to have their complaints reconsidered. In particular, if evidence can be submitted demonstrating that the past redress decision was unfair then those companies may be eligible to get a second verdict.
I have been mis-sold an enterprise finance guarantee loan, what do I do?
We consider that it is important for customers who have fallen victim to EFG loan mis-selling to maintain their option of seeking redress through legal proceedings. The period of initiating legal proceedings for EFG loan mis-selling will usually be six years from the date of the sale (or from the date when the bank first proposed an EFG loan to the customer). Given that EFG loan mis-selling has occurred since November 2008, it is likely that more victims will progressively become time-barred from seeking legal redress although s14A of the Limitation Act may provide a further three year period from the ‘date of knowledge’ of the mis-sold EFG. Those customers will then risk finding themselves with no or limited legal recourse if RBS’s review proves unsatisfactory (or if they were mis-sold and EFG loan by another bank).
EFG claims can be progressed either via litigation or via the review or by both processes which can result in significant advantages for claimants resulting in an optimal financial outcome. Please contact us to discuss this further in an initial meeting.
I have been mis-sold a business loan by Clydesdale Bank, am I eligible to use the BDRS?
Clydesdale Bank (formely Yorshire Bank) have been found in the past to have mis-sold fixed rate loans or TBLs usually containing (or are backed by) swaps or other over-the-counter derivatives and are often widely described as ’embedded derivatives’ or ‘hidden swaps’.
Clydesdale have concluded its’ own partisan internal review of its’ own misconduct in selling the embedded derivatives. However, the FCA have suggested that the new resolution service will be able to deal with complaints from businesses mis-sold business loans by Clydesdale Bank.
Preserving Litigation Rights – Limitation Warning
There are strict time limits for bringing legal claims against banks for the mis-selling of hidden swaps and EFG loans. The time limit is generally six years from the date the bank first started mis-selling products or the date of the loan contract.
After the limitation date, claims will face limitation challenges by the bank. However, steps can be taken to protect legal rights and prevent banks from asserting a limitation defence.
Affected Clydesdale Bank, Yorkshire Bank and RBS customers should urgently seek legal advice.
Will a Banking Dispute Resolution Scheme (BDRS) work?
SMEs are too often drawn into complex disputes with banks and other financial institutions, which are beyond the remit of the FOS to address due to FOS’s maximum threshold of £150,000 (now £350,000 from 1 April 2019 against regulated firms). Furthermore, the court system can be costly and risky for SMEs (who do not have the financial and legal sophistication of the banks). The FCA is not equipped to be an arbiter of disputes, and so regulatory review schemes are fatally undermined by the FCA’s reliance on the wrongdoer banks to conduct such review schemes into their own alleged wrongdoing.
It is clear that the current avenues for redress are not working for SMEs; if justice is to be delivered and maintained in the future, a new avenue for redress needs to be created.
However, it remains to be seen whether another redress apparatus with voluntary compliance by major banks (the BDRS) will be able to provide a platform for justice for SME customers and instill confidence in the banking sector by operating as a safeguard against past and future financial misconduct.
In particular, safeguards need to be put in place to ensure that banks do not simply repeat their previous tactics (used in litigation and in regulatory review schemes) of withholding potentially damaging information.
A big step towards creating a functional BDRS that can exercise appropriate control over the financial services industry and fill the lacuna that currently exists in practice for SMEs is for the BDRS to have the power to control the disclosure process and to sanction non-compliance publicly.
Our Mis-sold TBL and EFG Lawyers get the best results
We endeavour to make the process as stress-free as possible for our clients and seek to eliminate the possibility of business or litigation failure. We know that each client’s case and business is unique, therefore we adopt a bespoke approach tailored to suit the client’s circumstances. We provide specialist senior legal advice from solicitors and barristers (including at QC level) at the outset when it absolutely matters in pursuing the best strategy to follow. We are regularly instructed by regional solicitors’ firms to give specialist litigation advice and support in swaps mis-selling cases. We assist by:
- Issuing legal proceedings & drafting documents/pleadings to support the mis-selling claim;
- Assisting you in preparation of evidence to support your mis-sold hidden swap case;
- Appointing the right derivatives and hedging experts to ensure the best chance of success in litigation;
- Appointing forensic accountants to assess and report on the refunds and consequential losses due;
- Liaising with the bank and the Court and/or the Financial Ombudsmen Service;
- Providing first class Court representation and advocacy; and
- Developing (and aiding implementation of) strategies that allow the business to continue.
LEXLAW Banking Litigation & Dispute Resolution
It is an absolute must that victims of RBS, Clydesdale Bank, Yorkshire Bank or other banks protect their legal rights. This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Lloyds or RBS. Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless. Legal rights can be protected by taking urgent legal advice and by instructing specialist financial services litigation solicitors to issue a protective claim form or by instructing us to prepare and agree a carefully written standstill agreement.
Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation and specialise in representing SMEs in banking disputes. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks and have widespread experience in managing claims through redress schemes (which are similar to the Banking Dispute Resolution Scheme (BDRS)). Call us on 02071830529 or complete our online contact form.