RBS rocked by new loan mis-selling scandal, EFG compensations under review

15th Jan 2015 10:15

Another mis-selling scandal has engulfed Royal Bank of Scotland after it confessed to misleading some small business customers as part of the £2.3bn of loans the bank has made under the Enterprise Finance Guarantee (EFG) scheme.RBS has said it conducted an internal investigation into its sales of the government's EFG scheme and will now conduct a full "loan by loan" review to see which customers might need to be compensated.The bank said its investigation "identified a number of instances where we have not properly explained to customers how borrower and guarantor liabilities work under the EFG scheme".After government's business secretary, Vince Cable, met senior RBS management on Wednesday to discuss the situation, he said that he was "extremely disappointed" that the part-taxpayer-owned bank had "misused" the scheme.The bank also said it planned to run an "accountability review" to check where the failures arose in the management team, according to The Times, which said the mis-selling issue was behind the axing of deputy chief executive Chris Sullivan on New Year's Eve.The possibility of mis-selling came to light after complaints from small businesses about banks' use of EFG.RBS, which is 80%-owned by the taxpayer, has been the biggest user of the EFG scheme, which was set up in 2009 to encourage additional lending to small and medium-sized enterprises (SMEs).Loans under the scheme have a 75% government-backed guarantee to lenders who loan to SMEs that lack the security to obtain a bank loan.RBS admitted that some of its customers were incorrectly told that the taxpayer guarantee was for their benefit, rather than for the bank and "in certain cases, only when an EFG customer defaulted did the business owner discover that they remained liable for the entire outstanding loan".