RBS is rapped once more on mis-sold loans

ROYAL Bank of Scotland has come under fire again – for misselling government-backed loans to small businesses.

Following an internal investigation, the state-backed giant has admitted failings in the way it sold Enterprise Finance Guarantee (EFG) loans.

The EFG was set up in 2009 to boost lending by providing a 75pc government guarantee to banks willing to lend to viable small businesses which could not get credit.

But RBS, the biggest user of the scheme, says staff incorrectly told some customers they were covered by the go v e r n ment guarantee.

This lulled small firms into a false sense of security and after several customers defaulted on their loan repayments, they discovered that they remained liable to the bank for the entire outstanding loan.

The Federation of Small Businesses said the revelations would hurt already-poor levels of trust between businesses and banks.

John Allan, its national chairman, added: ‘We are deeply disappointed that yet another example of a bank mis-selling to businesses has come to light. It is completely unacceptable for firms to be misled in this way.’

RBS (up 0.1p to 362.8p) initially played down the damaging allegations. But an internal investigation led by Alison Rose, the head of commercial and private banking, has found evidence RBS was at fault.

The failings infuriated business secretary Vince Cable who visited senior RBS executives to discuss the problem. He said: ‘I have asked that RBS puts the situation right as quickly as possible, so that neither RBS customers nor taxpayers are adversely affected.’

The bank has started to contact up to 1,800 customers who have defaulted on their loan or struggled to meet their repayments. It said just 320 have defaulted.