Bring entrepreneurs in from the cold

NOEL Edmonds is not alone. Our account last week of how he was driven to despair by what he says was the misconduct of his bank, HBOS, has struck a chord with many other business owners.

The nightmares they say they suffered highlight a black hole in regulation of bank lending to small and medium-sized firms, in that there is no truly independent provision for sorting out disputes.

The smallest micro-companies can go to the Financial Ombudsman – but the only redress for the rest is the courts, and that is too expensive to be a realistic option for most.

In between the two is a gaping void where firms have nowhere to go. What is needed is a small firms ombudsman, or a tribunal that can hear cases.

If politicians are serious about wanting to create an enterprise economy – and they certainly should be if Britain is to have a hope of prospering post-Brexit – then this needs to be sorted out, and fast.

Andrew Bailey, the chief executive of the Financial Conduct Authority, wants politicians to act.

He believes it is in the interests of everybody, the firms, the watchdogs, the wider economy and even the banks, that there is an effective mechanism in place – and he’s right.

No doubt there are some bogus sob-stories in the large pile of cases. But there are simply too many people, with stories that are too similar, for them to be dismissed en masse.

When dealing with personal customers, the banks are regulated to the hilt. Individuals have all sorts of protection against mis-selling, as the lenders found to their cost with the PPI scandal, which has set them back tens of billions of pounds.

Small and medium-sized businesses are in a very different position. Lending to them is pretty much unregulated and there is no industry complaints or compensation scheme in place.

Very large companies can look after themselves. But small and medium-sized firms, even if they are reasonably substantial operations, are in a very unequal relationship with their bank.

Despite the recent emergence of so-called ‘challengers’, most business banking is done by the Big Four of Lloyds, HSBC, RBS and Barclays.

So firms don’t have much choice of provider, and they don’t have much negotiating power.

If their relationship with the bank breaks down they risk falling through the regulatory cracks.

The Financial Ombudsman Service is primarily set up to cater for individuals and is not geared to deal with complex business complaints.

The All-Party Parliamentary Group on Banking reckons that those firms not covered account for two-thirds of the private enterprise workforce, or 17 million employees, and have a combined turnover of £2.9 trillion.

The banks themselves have set up a number of schemes in response to various scandals. Lloyds instigated a review by Dame Linda Dobbs into its handling of the HBOS Reading scandal and a separate review by Professor Russel Griggs into compensation.

RBS had a confidential so-called Section 166 inquiry into its controversial Global Restructuring Group business unit, which was accused of driving firms to destruction for its own gain, parts of which leaked out recently.

These ad hoc schemes may be well-intentioned, but they are confusing and variable in their transparency.

They don’t fulfil what is presumably the aim – of drawing a line under the problem and restoring trust.

Instead, they are perceived by firms as whitewashes, not credible and unbiased inquiries.

Setting up a genuinely independent body to resolve small and medium firms’ lending complaints is the only way of laying to rest a scandal that has disfigured the banking landscape for more than a decade.

This loans scandal has disfigured the banking landscape for over a decade