Clydesdale faces £1bn claim over loan scandal
Small firms begin a group action against the bank for ‘charging huge break fees’
SMALL businesses that say they were mis-sold loans by Clydesdale Bank are preparing to sue the lender for up to £1 billion.
Firms that took out so-called Tailored Business Loans on fixed rates are about to launch a group action through legal claims firm RGL Management Limited.
The action could prove controversial as RGL takes a big chunk of compensation payouts. RGL says it already has ‘several hundred’ firms on board with claims against the bank worth £1.6 million each on average.
The small firms say they were not properly informed about the huge ‘ break fees’ that were charged if they wanted to pay off expensive fixed- i nterest loans before the end of their term. In some cases these penalties were said to be as much as £500,000 for a £1 million loan.
Clydesdale sold the loans in question between 2007 and 2012, with clients offered fixed products to protect them against a possible rise in interest rates.
In the event, base rates were reduced to historically low levels, meaning the firms were either forced to stick with rates that had become very unattractive or to pay a large fee to extricate themselves.
They cl a i m the break fees were not properly disclosed to them at the time they took out the loans.
James Hayward, chief executive of RGL, said: ‘ We know that there are about 6, 500 people who were damaged by this product. A lot of them may not even know they’ve got a claim. Some may think, “Oh silly me, perhaps I didn’t read all the documents carefully enough”, when in fact they’ve been the victims of Clydesdale.’ RGL plans to file a legal claim by the end of this year. It said the £1.6 million average claim only includes direct losses from the fees themselves. The costs for Clydesdale could increase if claims relating to losses suffered as a result of paying the hefty fees are taken into account. Critics of the banks are likely to welcome the move. But claims firms have themselves come under fire for charging claimants to file cases they could make t hemselves. This has been especially t rue in the case of those seeking damages for mis-sold payment protection insurance. Businesses signing up to RGL’s action get just 55 per cent of the proceeds of any successful claim. RGL says that this case is different from PPI claims because it is expensive to launch an action of this kind and small busi- nesses cannot take on banks on their own.
Hayward said that bringing such a case could cost a small business up to £2 million in legal fees and the firm would risk being forced to pay the bank’s costs too, if unsuccessful.
One leading c a mpa ig n e r against the banks said that going though a claims management company was often the only option, even though it is not ideal. This i s because there i s no ombudsman or tribunal system to deal with bank disputes involving firms, as there is for consumers. The campaigner said: ‘RGL is not a white knight. It has seen a market opportunity. But it’s the only way people have an opportunity for some satisfaction.’
Clydesdale itself insists those who feel they were mis-sold loans can complain direct to the bank, which was founded in Glasgow in 1838 and is one of only a handful entitled to issue banknotes. But the campaigner said in-house schemes are not independent and act as ‘judge, jury and executioner’ in relation to redress.
The legal action against Clydesdale comes amid growing anger among small firms about banks. TV star Noel Edmonds detailed the treatment of his Unique Group business by former HBOS bankers in The Mail on Sunday earlier this month.
FCA boss Andrew Bailey last week said there should be a tribunal or ombudsman-style service for small firms to get justice when poorly treated by banks.
Clydesdale said it had not yet received a claim from RGL. It added this was a ‘longstanding historical matter’ and said it had made ‘ significant progress in resolving the vast majority of cases’. The bank has set aside £92 million for customer redress, including those claims relating to ‘tailored’ loans.