RBS admits mis-selling loans to troubled businesses

The news will come as a fresh blow to the bank, which has been reeling over revelations about its treatment of small businesses

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Royal Bank of Scotland has run into yet more trouble over its lending to small businesses, with the launch of a review of loans that it sold through the Government’s Enterprise Finance Guarantee (EFG) scheme after the bank admitted to mis-selling.

RBS is having to go through sales of 1,800 loans to businesses either in distress or default after it emerged they may not have had their liabilities under the scheme properly explained.

The Government underwrites 75 per cent of the loans that are offered to businesses unable to secure lending.

But firms that borrow through the scheme are still liable to repay the entire cost if they run into trouble, and it has emerged that this may not have been explained.

The news will come as a fresh blow to the bank, which has been reeling over revelations about its treatment of small businesses.

A review by Sir Andrew Large, a former deputy governor of the Bank of England, found widespread failings.

And while an investigation by the City law firm Clifford Chance cleared the bank of allegations that it had forced viable businesses into insolvency for profit, it also unearthed some embarrassing features of the bank’s approach.

The review was sparked by a number of complaints about the sales practices at the taxpayer-owned RBS, which has advanced more than £900m to 9,000 firms under the EFG scheme. The Financial Conduct Authority, which has already been running the slide rule over the bank’s small business lending, has been informed of the issue.

The Business Secretary Vince Cable said he was “extremely disappointed” with the situation and had “asked RBS to put it right as soon as possible”.

The review could, however, be a further blow to the Government’s attempts to get RBS off the state’s books.

A speech by the Chancellor George Osborne in which he pledged a strategic review of the taxpayer’s stake in RBS, early in the next parliament, was interpreted  by some as a prelude to selling for less than the State’s 502p buy-in.

However he said he would take “quite a lot of persuading” before taking such a step.

Alison Rose, chief executive of commercial and private banking at RBS, 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... ensure that customers fully understand the features of the product. I am not satisfied that we have met those standards in all cases.

“Following discussions with the British Business Bank, we have [acted] to put this right.”