Hammond demands “robust” redress for small businesses.

30th January 2019.

 Chancellor Philip Hammond has called for small businesses to receive stronger protections, stating that tougher measures must be included in a proposed scheme offering small businesses an affordable way to bring disputes against their banks. 

 

Writing to UK Finance chief executive Stephen Jones in response to the bank representative’s proposed dispute service, Mr Hammond urged that the service must include a broad range of interests and not impose a cap on compensation for businesses. The Chancellor stated that a “balanced representation” of both banks and businesses amongst those drafting the proposed service was “vital” in order to ensure fairness and for the new service to be “regarded as truly robust and independent.” 

 

Proposed dispute service to offer SMEs “affordable” justice 

 

The voluntary scheme has been proposed by UK Finance after a decade of campaigning from small businesses, who say their banks mistreated them in the wake of the 2008 financial crisis. It is aimed to help businesses who have an annual turnover of £6.5m-£10m and are therefore ineligible to take complaints to the Financial Services Ombudsman for free, instead only having recourse to pursue lenders via the courts. Under the current proposal, banks would pay firms up to £350,000 in compensation for “historic” complaints relating to the financial crisis.

 

Other politicians have criticised UK Finance’s current proposals as insufficient, stating that they would exclude hundreds of firms from affordable access to justice. Kevin Hollinrake, chair of the cross-party parliamentary group for fair business banking, said of the scheme: “It’s massively important to give firms access to affordable justice and we are nowhere near that.” Shadow city minister Jonathan Reynolds echoed this sentiment, stating that policy reforms would “have to address the serious issues of conduct relating to how some businesses were treated both before and after the crisis.”

  

Civil action failing SMEs

 

Small businesses borrowing money have been affected by banking misbehaviour in the wake of the financial crisis, as well in some notable cases being the victims of outright fraud. In the HBOS Reading scandal, SMEs which took out loans fell prey to a £245m scam, with corrupt bankers spending customers’ money on themselves. Parliamentary committee chair Mr. Hollinrake however notes that it is “virtually impossible for most people to sue a bank, with business lending still not regulated in the UK and so unprotected by the Financial Conduct Authority.

 

In the wake of recent misconduct, the lack of regulatory protections for businesses against banks have come to light, with many firms forced to resort to the expensive option of civil action, and many still yet to reach settlements for their losses a decade on from the financial crisis. According to campaigner Nikki Turner, businesses in some cases “have spent a fortune on civil actions only to find their cases were dropped as soon as they ran out of money.” She adds: “Banks know that dragging things out will mean people do run out [of money]. Unless you have access to someone with very deep pockets who is prepared to bank roll you, the civil court is rarely an option.”