Banks have been trying to squeeze extra fees out of businesses in return for helping them through the coronavirus crisis, Britain’s banking regulator revealed today.
The Financial Conduct Authority (FCA) has written to lenders warning them not to mistreat their customers after learning some were demanding cash for no actual work.
Most British banks have already been slammed for approving too few loans under the existing Coronavirus Business Interruption Loan Scheme (CBIL) that was announced last month – or force customer on to their own more expensive deals.
So far around 20,000 businesses have received loans worth a total of £3.4billion through the scheme, while £14billion has gone to large companies through a separate scheme overseen by the Bank of England.
In the letter sent to banks today, officials from the FCA said they had ‘heard credible reports of a small number of banks failing to treat their corporate clients fairly when negotiating new or existing debt facilities, as clients navigate the current exceptional circumstances’.
Banks across the City of London were warned about their copnduct today after it emerged some were trying to claim fees from customers during the coronavirus crisis without actually doing any work themselves
With businesses struggling to survive the lockdown, many have been forced to turn to shareholders to raise extra cash.
Several listed businesses have already announced they raised millions from investors and others are eyeing up their options.
Firms struggling to secure emergency loans under government scheme warned to steer clear of brokers charging to ‘fast track’ applications
Cash-strapped firms struggling to secure emergency loans under a government scheme have been warned to steer clear of brokers charging thousands of pounds in fees to ‘fast track’ their application.
Treasury officials and the City watchdog expressed concern after it emerged a Chelmsford-based company is charging £500 upfront, then a percentage of the value of the loan if the application is successful.
Despite a recent surge in approvals, banks have been lambasted by MPs and business groups for making it too difficult to obtain a Coronavirus Business Interruption Loan.
This has created a lucrative opportunity for loan brokers – some of which are charging upfront fees to help firms with their application, whether it is successful or not.
Others are charging a percentage of the value of the loan if it is approved on top of, or instead of, this. This is typically charged at up to 3 per cent, which equates to a fee of £15,000 on a £500,000 loan.
The development has come to light after a plumbing firm applied to Lloyds for an emergency loan and heard nothing back.
But raising the cash requires banks’ Capital Markets divisions to liaise with investors and whip up interest – usually in return for large fees.
However, the FCA said: ‘In particular, we have heard reports that banks may have used their lending relationship to exert pressure on corporate clients to secure roles on equity mandates that the issuer would not otherwise appoint them to.
‘In some cases, these roles may be ‘in name only’, with few or no additional services being provided in exchange for a share of the fee pool. We will be looking into this further, but want any practice of this nature to cease immediately.
‘We are concerned that tying clients to take additional services, or demanding fees for services not provided is not in the best interests of those clients, distorts competition, undermines market confidence and calls into question firms’ and individuals’ integrity.
‘This conduct is also likely to increase overall transaction costs for corporates trying to raise money.’
Officials also reminded banks that each worker registered with the FCA has personal responsibilities and rules to uphold.
Banks that offer both lending and services for fundraising from investors, must now conduct a review of their practices, the FCA added.
It said: ‘If we find further evidence to support these concerns, we will not hesitate to take action, as this conduct has no place in well-functioning markets.’
Many firms in need of cash to survive the virus crisis complained that it was slow and complicated to get hold of money as only 80 per cent of the loans were guaranteed by the Government, meaning banks still wanted to perform their own checks.
This week firms were thrown a lifeline as the Chancellor announced they will be able to get interest-free loans worth up to £50,000 under a new fast-track scheme.
Small businesses have been left struggling to cope as the government effectively put the economy on pause to stop the spread of coronavirus (pictured, Winchester High Street)
Chancellor Rishi Sunak unveiled the provision in the latest escalation of the massive bailouts for firms hit by the coronavirus lockdown
Rishi Sunak said the ‘bounce back’ loans will be 100 per cent guaranteed by the Government so there are no hold-ups in getting the money out of the door.
Companies will be able to get the loans in just 24 hours thanks to a streamlined application process that will not include lengthy checks by their banks.
Business groups last night said they would give hope to thousands of smaller firms, including sole traders, who have struggled to get help through the existing schemes.
Mr Sunak five weeks ago announced that up to £330billion in emergency loans was available to businesses, but so far just £17.4billion has been handed out.
Smaller companies had complained about the level of bureaucracy they faced from banks to get the loans as they were only partly underwritten by government and most lenders refused to offer loans below £25,000 – more than many wanted to borrow.
In a statement to the Commons, Mr Sunak acknowledged that ‘some small businesses are still struggling to access credit’.
He told MPs: ‘They are in many ways the most exposed businesses to the impact of the coronavirus and often find it harder to access credit in the first place.
‘If we want to benefit from their dynamism and entrepreneurial spirit as we recover our economy, they will need extra support to get through this crisis.’
Under the new ‘microloan scheme’, firms will be able to get loans worth up to 25 per cent of their turnover, up to a maximum of £50,000.
The government will provide lenders with a 100 per cent guarantee for the loans, as well as paying any fees and interest for the first 12 months.
Mr Sunak said they would provide a ‘simple, quick, easy’ solution for smaller firms.
Businesses will be able to apply to their banks for the loans from 9am next Monday through a short, standardised online application.
The Chancellor said there would be ‘no forward-looking test of business viability, no complex eligibility criteria, just a simple, quick standard form for businesses to fill in’.
But Mr Sunak rejected calls for the Government to underwrite the other coronavirus loan schemes with a 100 per cent guarantee, insisting his new plan would ‘carefully target’ the level of state support at those who need it most.
In his statement to MPs, the Chancellor warned: ‘We should be in no doubt about the seriousness of the economic situation… These are already tough times. There will be more to come.
Mr Sunak said he shared with the Prime Minister ‘a sense of urgency to want to restart our economy – not least so that we can get people back into work and start creating the tax revenues that we need to pay for our public services’.
But he insisted ‘we are not there yet’, adding: ‘Right now the most important thing we can do to protect our economy is to protect the health of our people.’