One of Britain’s biggest high street banks is facing a multi-million pound legal claim from small businesses (SMEs) over allegations it mis-sold loans whose spiralling costs pushed a number of companies into insolvency.
Sky News has obtained a funding document showing that at least £2.7m has been committed by Augusta Ventures, a litigation funder, to bring a claim against CYBG – owner of the Clydesdale and Yorkshire bank networks – potentially on behalf of thousands of SME customers.
The alleged losses for customers are said to range from hundreds of thousands of pounds to several million pounds each.More than 8,000 so-called Tailored Business Loans (TBLs) containing interest rate swaps that were not clearly explained to customers are understood to have been sold to SMEs by Clydesdale Bank between 2001 and 2012.The slashing of interest rates in the wake of the 2008 banking crisis sharply forced up the cost of these loans.The legal claim is expected to allege that these SME customers believed they were taking on a simple fixed-rate loan, and that the TBLs therefore represented fraudulent behaviour on the part of CYBG.One person familiar with the impending action, which is being handled by RGL, a claims management company, said the aggregate value of the claims against CYBG could run to several hundred million pounds – a significant sum for a bank which made a statutory profit of just £77m last year.However, they cautioned that that figure was dependent upon the number of claimants who signed up, and that it could also be substantially smaller.The case contains echoes of a long-running row over the sale of interest rate hedging products (IRHPs) to SME customers of the UK’s biggest banks, most notably the state-backed Royal Bank of Scotland (RBS).Last November, the Financial Conduct Authority (FCA) said that a review set up to address failings in the way nine banks – including CYBG – had sold these loans had led to £2.2bn being paid out in redress.That figure included £500m in consequential losses, which refers to money not directly connected to the mis-sold loans but which was lost by customers because they had bought the products from the nine lenders.The FCA scheme is subject to independent review, but a significant number of SMEs have argued that their bank has failed to properly handle their claims.In the letter from Augusta Ventures seen by Sky News, sent to RGL in mid-June, the litigation funder said it had undertaken diligence on the prospective claim against Clydesdale.”We agree that there is a sound basis for progressing with the strategy as proposed by RGL for the brining of a claim(s) against Clydesdale by customers who, amongst other things, entered into fixed rate loans marketed as Tailored Business Loans either not knowing, or to whom it was not properly explained, that the loan documentation included an embedded interest rate swap,” it said.The TBLs frequently included very high break fees, with one CYBG customer saying that their loan faced a break cost of up to £200,000 on a loan of £1m.Many customers also accused the bank of concealing these costs from them.A Treasury Select Committee report published in 2015 urged ministers to examine whether to bring IRHPs and similar loans within the scope of regulation.Andrew Tyrie, the former MP who chaired the Committee, said at the time: “This gap in the regulatory perimeter meant that the product created by Clydesdale Bank was not covered by the usual safeguards.”Many of its customers did not understand the product and could not reasonably have been expected to do so. Some were probably unaware that the product fell outside the scope of FSMA. Regulators have been powerless to provide redress to those affected by wrongdoing.”Furthermore, Clydesdale’s own internal review of potential mis-selling appears to have serious shortcomings: it lacks public oversight, transparency and is limited in scope.”A CYBG spokeswoman said: “CYBG has no record of a TBL claim being submitted by either RGL Management or Augusta Ventures. If and when any claim is made, we will deal with it in the appropriate way”.