Berg’s banking report claims long term blight on SMEs
A LAW firm handling hundreds of complaints about the conduct of the banks towards small and medium sized businesses, is warning of a “lost generation of entrepreneurs”.
The report from the Manchester law firm Berg, looks at the behaviour of the big four lenders, RBS, Barclays, Lloyds and HSBC and examines their attitude to some SME clients, particularly those which have claimed compensation over interest rate hedging products, commonly known as swaps.
Berg claims the banks who have offered to address mis-sold financial products are hitting their customers in the different ways by employing what it calls “aggresive redress”, such as by reducing overdrafts and restructuring loans so repayments are rising.
It also warns of severe consequences for the economy as a result in a break-down of trust between business owners and banks, and says
The firm is critical of not only the banks, but the regulator, the Financial Conduct Authority, too particularly its soft stance over consequential losses claims – the compensation SMEs feel they are due as a result of being mis-sold an unsuitable product.
The report says: “It is not only the financial damage that mis-selling claims have caused, but also the breakdown in the trusted relationships business owners believed they had with their banks.
“The erosion of trust has left a significant imbalance in the relationship. It is likely that further regulation in the commercial banking sector will become necessary if that imbalance is to be redressed.
It continues: “If the Treasury, FCA and banks do not support businesses that have had their financial services arrangements compromised then this could have serious long-term implications for the UK economy.
“Whilst failing businesses need to be allowed to fail to maintain the natural order of the economy, the strangulation of perfectly healthy businesses has a ripple effect throughout the SME sector, one which could very well see a so-called lost generation of entrepreneurs.”
Alison Loveday, managing partner at Berg, said: “The report into SME banking has been published because we have found that not only has the FCA process been unsuitable for many of our region’s businesses, but that here and across the UK, it is ‘business as usual’ for many banks in the way they are dealing with SMEs.
“This includes the mis-use of personal guarantees, the recommending of unsuitable lending arrangements, and aggressive attempts to claw back redress costs from the FCA review.
“We have been working with local MPs and businesses to write the report, and I hope it will help draw people’s attention to the fact that a new wave of SME lending malpractice cannot be allowed to happen.”
