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Clydesdale Bank and SMEs

Volume 656: debated on Tuesday 19 March 2019

Before I call the hon. Member for Lanark and Hamilton East (Angela Crawley) to ask her urgent question and the Economic Secretary to the Treasury to respond, I must again advise Members that, under the terms of the House’s resolution on matters sub judice, they should not refer to specific cases that are currently subject to legal proceedings; Members may of course speak to the general issues.

(Urgent Question): To ask the Economic Secretary to the Treasury if he will make a statement on Clydesdale Bank’s treatment of small and medium-sized enterprises.

The Government are committed to ensuring a strong, diverse and dynamic economy, where small businesses can access the credit they require in order to prosper and grow. As such, we expect the highest standards of behaviour across the financial sector, which is why a number of necessary changes have been introduced to restore public trust in financial services, such as the senior managers and certification regime. Although it would be inappropriate for me to intervene in individual cases, particularly when they are subject to ongoing legal proceedings, we must always remember the human element to each case. That is why the Government have been consistently clear that, where there has been inappropriate treatment of SMEs by their bank, it is vital that those businesses can resolve their disputes and obtain fair redress.

At the Budget last autumn, the Government set out their support for the Financial Conduct Authority’s plans to expand eligibility to complain to the Financial Ombudsman Service to small businesses and micro- enterprises. This will ensure that, from 1 April 2019, well over 99% of all UK businesses will have access to fast, free and fair dispute resolution. The Government have also been clear that banks need to work hard to restore businesses’ trust in their institutions, and have welcomed the banking industry’s commitment to establish two independent voluntary ombudsman schemes to resolve SME disputes.

I am extremely pleased that last week my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) agreed to sit on the steering group responsible for implementing these schemes, alongside Nikki Turner from the SME Alliance. That follows several months of intense engagement with the all-party parliamentary group on fair business banking. Although eligibility for the scheme to address historical complaints will need to be determined on a case-by-case basis, I encourage all SMEs that believe that they are eligible to apply once the scheme is up and running in September.

I am pleased that the sale of loan portfolios to third parties is now covered by the standards of lending practice—overseen by the Lending Standards Board—to which Clydesdale is a signatory. That means that it is now committed to ensuring that third parties that buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute that cannot be resolved. I can also confirm that Andrew Bailey of the FCA has spoken to Clydesdale about the case in question.

The Government are not complacent about this serious matter. We will monitor the implementation of these new or expanded dispute resolution schemes, and we will continue to remind banks of the importance of restoring SMEs’ trust in them.

I asked for this statement on Clydesdale Bank’s treatment of SMEs in the light of my constituent John Guidi’s hunger strike in protest at his treatment by Clydesdale Bank and Cerberus Capital Management. I am aware that aspects of Mr Guidi’s case are sub judice, so I do not intend to refer to the specifics in any way that would prejudice the case.

In 1998, John Guidi built a business in the west of Scotland with a portfolio of almost 150 properties. Clydesdale Bank backed that business from the very beginning. Mr Guidi has told me that he was treated by bank chiefs as “a model customer”, and in only 15 years he built a property business worth £16 million. He never missed a payment, was in regular communication with bank bosses and appeared to have a great relationship with the organisation.

My constituent informed me that Clydesdale Bank changed the structure of his loans in 2002, introducing him to the tailored business loan. In 2014, Clydesdale Bank sold its tailored business loans to Cerberus Capital Management—an American private equity business. Mr Guidi says that this organisation aggressively pursued the debt and subsequently put his company into receivership a few months after purchase. As a result of my constituent signing a guarantee, he has personally been made bankrupt, and the company is pursuing his family home. He only has a few weeks before he is evicted and has taken the decision to start a hunger strike in protest.

This tragic case brings attention to the vulnerability of UK businesses to abusive treatment by lenders and vulture funds, and the inadequacy of current regulation in preventing it. Sadly, John is not alone. There are hundreds of people across the UK whose tailored business loans were sold by Clydesdale Bank to Cerberus Capital Management. Since 2010, Cerberus has acquired more than 1.2 million distressed or non-performing loans, worth more than $80 billion. Simply put, Cerberus is the world’s largest debt collector.

As we all know, so-called distressed loans are often anything but. Since the banking crisis of 2008, we have seen a sorry catalogue of thousands of instances in which banks have forced legitimate borrowers into distress through no fault of their own, and because loans to SMEs are not regulated properly, the customers have little or no redress. John now finds himself in that category. All he wants is a fair say before he loses his family home. He has requested that his case go to an independent arbitrator for a review.

Will the Minister join me in calling on both Clydesdale Bank and Cerberus to engage with my constituent urgently, and will he meet John to discuss how the lack of regulation in the banking industry has destroyed his business? Finally, is now not the time to pursue an independent financial tribunal to ensure that my constituent can receive adequate remedy from the dispute resolution of his case?

I thank the hon. Lady for her points, and I will try to address them all. The decision to develop the dispute resolution service was taken carefully, after a lot of engagement with the industry. I am obviously aware of the press coverage around the case and of the extremely difficult circumstances faced by her constituent. I understand that enforcement action is currently on hold as legal proceedings have been brought against Clydesdale and Cerberus. I also understand that Clydesdale and Cerberus have offered to meet Mr Guidi.

The hon. Lady raises a number of points about a preferred alternative mechanism for resolving such situations. It is common across all jurisdictions for banks to sell off parts of their portfolio of debt at times. The question becomes what the appropriate mechanisms and safeguards are in those cases. The sale of debts to third parties is covered under the standards of lending practice, to which Clydesdale is a signatory. That means that it is committed to ensuring that third parties that buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute between the business and the third party that cannot be resolved.

I am very happy to meet the hon. Lady to go through the full extent of her outstanding concerns on the matter. I take the issue and this case very seriously.

I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) on raising this urgent question. As somebody who was involved with the all-party parliamentary group on fair business banking back in 2012 and 2013, the fact that we are still talking about businesses that were sold TBLs which have not received redress is somewhat shameful. I appreciate the very constructive comments made by the Minister. I also congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on his work as chairman of the all-party group. Is it not the case that these issues could have been resolved much earlier if, for example, the FCA had included TBLs in its original redress scheme, and would that not have resolved some of the issues now being faced by constituents of Members across this House?

I acknowledge my hon. Friend’s long-standing efforts in this area. Before I was a Minister, I was a member of that APPG. The whole range of dispute resolution mechanisms that have taken place over the past 10 years all seem to have a very different story. As the Minister responsible, I was keen to ensure that we had a meaningful historical redress mechanism that would give discretion for the banks to examine these individual cases. I was also very keen that this House should be represented on that group. That is why having my hon. Friend the Member for Thirsk and Malton, with representatives from the SME Alliance, involved will allow full scrutiny of all the cases that have not been resolved adequately.

I thank the hon. Member for Lanark and Hamilton East (Angela Crawley) for securing this urgent question and for being a firm advocate on behalf of her constituent.

All people and all businesses in the UK deserve a mechanism that provides them with access to justice in the event that they end up in dispute with their financial services provider. Under your guidance, Mr Speaker, I will not comment on the specifics of the Guidi case. However, as many Members are aware, the issue of redress for SMEs against banks and other financial services providers is one that we have discussed in this place many times. At present, too many businesses are caught between the threshold for using the Financial Ombudsman Service and the cost and difficulty of using the full legal process to pursue a claim. So this issue is about more than just one case.

We must take decisive action to draw a line under historical cases like these, as well as ensuring that we have an adequate system of redress going forward. If we do not, then we have no hope of restoring the trust and confidence in business banking that this country so desperately needs. The debates that we have held so far have revealed a substantial coalition across the House for a full tribunal system, alongside a historical case review, that would look again at cases that have been settled by internal bank review processes. The Labour party, the Scottish National party, the Liberal Democrats, the Democratic Unionist party and many individual Conservative MPs certainly hold that view; it is only the Government who do not.

I therefore have some questions for the Minister. First, do the Government agree with the Opposition that where there is evidence from complainants, the historical review process should be willing to consider cases going back to 2000? At present, only those going back to 2008 would be eligible. Secondly, are the Government willing to reconsider their view on the establishment of an independent tribunal system for dispute resolution in order to level the playing field between businesses and their banks? Thirdly, have the Government listened to those people arguing that the expansion of the ombudsman service alone will not solve the problem, as it does not have sufficient resource and capacity to get to the root of the problem, and the mooted compensation cap by the Government looks far too low?

Most of all, do the Government acknowledge that MPs want to see some real action and progress on this? It is disappointing that despite many hours of parliamentary debate and consensus on what must happen next, with agreement stretching across the Treasury Committee, the Opposition, the Financial Conduct Authority, the major banks themselves, such as TSB and Metro, and the all-party parliamentary group on fair business banking, the Government are still reluctant to join this consensus. We all want to be able to tell our constituents that these issues are resolved and simply will not be allowed to happen again.

I thank the hon. Gentleman for his comments. I always listen very carefully to the constructive way that he presents his case.

Let me address the hon. Gentleman’s three core questions. First, the historical review process has been as set out, but there is discretion within that. I know that there will be a lively discussion at the first board meeting about how the handling of past cases will be considered. In terms of the disputes over how to resolve this, the role of the Financial Ombudsman Service is being expanded. Its representatives were in Parliament last week offering access to colleagues across the House, and I have visited them to examine what they are doing to recruit the extra resources needed to deal with this extra category. I think that this will work; I would not have made the decision otherwise. The other key consideration I have to balance is about the rapidity and efficiency with which the vast majority of cases—we are talking about 99% of businesses with a turnover of up to £6.5 million—will be able to get a resolution. That is why I think that the ombudsman service is the right way to go forward.

I thank the Minister for all the work he has done in this area. I do feel that we are making progress, but, understandably, the jury is out until we get to the place we need to be. I also thank the hon. Member for Lanark and Hamilton East (Angela Crawley) for tabling such an important question today. There are many issues with this. The case concerned follows a typical pattern. Over 10,000 of these tailored business loans were sold to businesses. It may be impossible for these businesses to refinance because of the exit fees. Personal guarantees were then required, and finance was withdrawn despite the fact that the businesses had never missed a payment. The FCA has looked at this and has said that these cases should be considered by the new dispute resolution scheme, which is good news for many people. I ask the Minister to impress on UK Finance that it makes sure that it suspends any proceedings in any of these cases until they have been reviewed.

Again, I thank my hon. Friend for the work he has done in this area. I met representatives of UK Finance just a few hours ago, and I am aware of his correspondence overnight on this issue as he joins the board imminently. The key concern I would have is the extrapolation of one case, or a few celebrated cases—tragic cases—to say that they are normative of practices across the sector as a whole. He smiles because he knows that is a conversation we have had frequently. This historical dispute resolution mechanism is not designed as some sop, but as a meaningful mechanism to interrogate wrongdoing in the past and seek resolution for those individuals who remain dissatisfied.

I congratulate my hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) on securing this urgent question.

The issue of transferring funds to an organisation such as Cerberus is far from the only one. The hon. Member for Thirsk and Malton (Kevin Hollinrake) mentioned businesses that did not have any debt issues whose loans were restructured and who were offered incredibly high and arbitrary repayment terms with incredibly high interest rates. That was completely inappropriate. The restructuring of debt should be tackled in the first place, and not just the transferring over. Nobody should be in the situation in which my hon. Friend’s constituent found himself.

The Minister said that these cases are not necessarily indicative of how everybody has been treated, but we have seen enough of them coming forward, and enough people losing their homes, losing their families, and, in some cases, losing their lives as a result. We know as parliamentarians that we see only the tip of the iceberg in the cases that come into our offices, and that there are probably many, many more that we have not seen and have not raised here.

It is clear from cases like the one that my hon. Friend describes that any system of voluntary redress is not working, and is probably not working in many of the cases that we see coming into our offices. I am concerned that the issue with voluntary redress schemes will also happen with the ombudsman scheme given that it is voluntary and not as all-encompassing as it could be. The Government can still take action and save face. What the Minister has said about the ombudsman system is interesting, but it is not the independent tribunal that we on the fair business banking APPG have been calling for. It does not go far enough on that basis.

The other thing that the Government have failed to do so far is to bring forward a massive, comprehensive review of banking culture to ensure that nothing like this happens again in future so we know that SMEs will not be treated in the same way as they were previously. It is incredibly important for our economy that SMEs can borrow, and they will not be able to do so if they do not trust the banking sector to treat them fairly. If the Government have to step in and ensure that this happens, then that is what needs to happen.

I thank the hon. Lady for her comments. There are two things there, and one is the adequacy of the voluntary mechanism. To be fair, it is unclear how it will play out, because it has only just been established. I see from my engagement with the chief executives and chairmen of the banks a massive desire to ensure that this has teeth and can deliver. This is not about the Government saving face. It is about ensuring that this process is effective. I will have deep engagement with and take a close interest in this process, because it must be effective and thorough in its examination of these cases.

I take the wider point that the hon. Lady makes about banking culture. A lot has changed in the last 10 years, and many of these cases arose before that. We now have a very different regulatory environment, with the Prudential Regulation Authority and the FCA, which has changed things considerably, but I will reflect carefully on her comments.

I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) on securing this urgent question. I had the opportunity recently to meet her constituent John Guidi, and I express my strongest concern for his welfare. Does the Minister accept that just one such example makes the case for introducing a financial services tribunal, to allow business owners to challenge financial institutions and have confidence that they will always be treated on the basis of fair play and justice?

I have extreme sympathy for everyone who has had the sort of experience that this constituent has had, but I do not think it is right for any Government to make policy on the basis of one case. It is incumbent on Government to set out a framework and a policy that will deliver real answers to complex questions. I do not accept that the regulation of bank lending would be a good step forward. I understand the argument that it would give certainty to small businesses, but my view is that it would discourage a lot of lending, because there would not be the same appetite for lending if that regulation was as onerous as it would likely be.

I join others in congratulating the hon. Member for Lanark and Hamilton East (Angela Crawley) on securing this important urgent question. We license and regulate banks to protect customers and because our economy requires SMEs to work as well as they do, but we also need to level the playing field of power between banks, SMEs and individual customers. There is overwhelming evidence that the banks have abused their position of power in the past. If I was at my most sympathetic, I would say that trust in the banking system is at breaking point. I actually fear we have gone beyond that. Is the Financial Conduct Authority really the answer to this, or has the time not come to have a financial services tribunal that SMEs, individual customers and banks can trust to resolve these problems, so that we can move forward?

I have listened carefully to the hon. Gentleman a number of times. As I have said to him previously, we need an effective mechanism that small businesses can get reliable and efficient access to and answers from. I have seen the investment that has gone into the expanded provisions of the ombudsman service. I know that he is not convinced, but this matter is not set in stone forever. Obviously the service needs to deliver. In my conversations with the chief executive of the ombudsman service, as in my conversations with UK Finance and the chief executive of every bank, I have said that this is the top priority in this area of my portfolio.

Thank you, Mr Speaker, for granting this urgent question. I have met too many individuals in my constituency who ran serious, sensible businesses and were a model in their borrowing but whose lives have been ruined by the behaviour of unscrupulous banks. Thank you for giving us the opportunity to air this on the Floor of the House.

I understand from my constituent Ian Lightbody that, despite the tireless efforts of him and his CYBG Remediation Support Group, they have not had the courtesy of a response from the CEO and chairman of CYBG, which sums up the complete contempt and disregard of Clydesdale Bank’s senior management for small business owners. Will the Minister join me in demanding that the bank, as a first step, shows some courtesy to these individuals and at least engages with them?

Yes. I am happy to take up the case of Mr Lightbody and ensure that he gets a conversation with the right people.

It is not just in calling for a financial services tribunal that the Treasury Committee has joined the consensus. We have also echoed the concern, based on widespread evidence we received, that the regulatory perimeter needs to be looked at in respect of commercial lending. We urged the Government not to adopt a “wait and see” approach. Having looked at the Government’s response to our inquiry into SME lending and listened to the Minister this afternoon, I think the Government do indeed appear to be taking a “wait and see” approach. When will we see more concrete action to give all business owners the confidence they need that whenever malpractice occurs—it does occur, and it is too widespread—they will see justice and accountability?

I thank the hon. Gentleman for his question. I have set out the expanded remit and role of the ombudsman service and the extension of the money that can be provided. I have also set out the engagement I have had with UK Finance on historical cases. I respectfully say to him that these are very early days—it is only two months since this decision was made, and I look forward to seeing urgent progress.

I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) on asking this important question. Along with effective dispute resolution, a properly functioning banking and financial services sector that commands the trust of the British people relies on brave individuals who are prepared to blow the whistle on wrongdoing within the institutions where they work. Does the Minister agree that it has become increasingly clear that we need enhanced protection so that people feel able to speak out and a regulator that is prepared to stand up for, support and protect whistleblowers when the going gets tough?

I recognise that we need in the Financial Conduct Authority and the PRA regulators that are able to take appropriate action in a timely way to deal with disputes where they have responsibility. I have regular conversations with the FCA and encourage it to look at different matters. I will obviously be concerned about how the expanded ombudsman service and the redress mechanism work, and nothing is ruled out in the future.

I congratulate my hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) on securing this important urgent question. Like many Members, I have constituents whose businesses were successful and would not have gone under had the banks not mistreated them. Does the Minister agree that the FCA should issue strict guidance that the banks should not destroy any documentation relative to ongoing disputes before the historical compensation scheme is established, and if they do so, they should be sanctioned?

The hon. and learned Lady makes a reasonable point. It would be perverse to shred relevant materials in the context of a provision that they have entered into freely, showing a lot of good will, to try to find resolution and get to a better point of trust between the public and themselves.

This is not just about one case. The description that the hon. Member for Thirsk and Malton (Kevin Hollinrake) gave of the sale of tailored business loans is identical to the case of my constituent. Furthermore, that constituent has clear, documented and contemporaneous evidence of deliberate false representation by the bank to the Treasury Committee, the Financial Ombudsman Service and the FCA. I venture to say to the Minister, for whom I have a lot of respect, that this is widespread across the banking sector. We have seen the activities of the Royal Bank of Scotland Global Restructuring Group in attacking SMEs. Much as I support the idea of a tribunal, surely now is the time to go further and have a full public inquiry into the character of banking.

I thank the hon. Gentleman for his comments. The key issue for many of these people, who have been waiting for a very long time—sometimes up to 10 or 11 years and longer—is to make sure they can get access to a mechanism that interrogates the evidence and deals with it swiftly. I was not indicating to my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) that we should not say there are not parallels or themes, but I just feel that we have to look at the evidence on a case-by-case basis. I am certain that there is good will in the dispute resolution mechanism to interrogate thoroughly past cases that are unresolved.

We acknowledge the work that the Government have done to date, and the point the Minister made about the need to strike a balance between banks being able and encouraged to lend and, at the same time, meeting the interests of their customers. Does he agree with me that an equally important balance is that between powerful financial institutions that have all the resources—and sometimes the resources of the state—behind them and small businesses that have been damaged economically by the actions of those banks and very often do not have the resources to fight back? Despite all the measures undertaken, 10 years down the line many are still seeking redress, still finding themselves blocked by the actions of the banks and now, ahead of the historical compensation scheme coming in, finding themselves forced into the courts and perhaps having their cases dealt with before the scheme comes in. Does he not agree that now is the time for an independent financial services tribunal, and for the FCA to make it clear to the banks that, ahead of the historical compensation scheme coming in, no further court action should be taken against individuals?

I believe the dispute resolution service that has been set up gives the scope to go back over 10 years of disputed cases, and there is a desire to provide quick access. As the right hon. Gentleman points out, some of these cases have been going on for far too long. The situation is that the banks were in a very bad place with respect to the power they wielded over individuals and small businesses. They want to sort this out, and that is why they have engaged constructively in the construction of this dispute resolution service.

Like other Members who have spoken, I have a number of constituents whose businesses were ruined by the actions of the banks. I think this is a much larger-scale problem than the Minister perhaps implied in some of his earlier answers. It is about an imbalance of power in the relationship between the banks and their customers. The banks have had years to provide redress and they have had years of a voluntary system in that regard, so how is a new voluntary tribunal system going to provide the redress the banks need to provide? Surely the time will come when the Minister will need to make this a mandatory system to provide the justice needed by small business customers who were ruined?

We have not in recent times had a system set up to give quick access in relation to disputes over the past 10 years, and my concern was to provide something that is effective and deals with all the issues that have been raised over the time I have been in office.

Given the personal cost of this—destroyed businesses, personal bankruptcy, mental health pressures, suicide and now a hunger strike—many of these people will not have the ability or the stomach for a historical review. Moving forward, may I tell the Minister that there is little confidence, including from the Treasury Committee, that the FOS has the ability, capacity or expertise to do the work it has been asked to do? I hope the Minister will listen—I am sure he will—to those in all parts of this House who are saying there is now an unanswerable argument for an independent financial services tribunal.

I thank the hon. Gentleman for his question, and I have responded to I think nine debates in this Chamber and in Westminster Hall on this matter. I am very aware of the pitch and the breadth of concern that exists on this matter and the urgency in getting some outcomes that actually deliver for our constituents, and I will continue to work towards that aim.

I think the hon. Member for City of Chester (Christian Matheson) hit the nail on the head. Let me give the House an example. A couple of years ago, when the Clydesdale proposed to shut its branch in my home town of Tain, I had a meeting with it and representatives of a highly successful local fish-processing business, and the Clydesdale was at pains to say, “Yes, we’re going to shut the branch, but you can use the post office locally.” Well, a fat lot of good that was, because the post office was too small, and I have raised that several times in this House. Now, in the next few days, that post office is going to close, and we will have no Clydesdale branch and no Royal Bank of Scotland branch in my home town. What good is that to SMEs? It is useless for business. I back the hon. Gentleman all the way: the time has come for a full inquiry into these banks, which, in my opinion, are completely out of control.

As has been discussed in numerous debates, the changing face of the high street bank causes considerable concern for our constituents. We have a protocol in place on the relationship with the Post Office and, from memory, I think something like 97% of people in this country live within three miles of and have access to a post office. I think the hon. Gentleman needs—

The hon. Gentleman needs to reflect on the fact that there will not be a one-size-fits-all approach across the whole of the United Kingdom, and the banks are willing to look at individual solutions in different circumstances. I would be very happy to meet him to discuss that further.

There is probably no more appropriate Member to have raised this than my hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) because, as Members will appreciate, Clydesdale is in fact the historical name for a great part of the constituency that she represents.

Does the Minister accept that no form of redress can ever be good enough once a business has gone bust and the owners of the business and their families have been put through 10 years or more of hell? What assurances can he give us that any future scheme of redress will become active and effective when there is still time to save businesses that, in the vast majority of cases, have operated lawfully within the rules and have been successful businesses? These businesses would not have been targeted if they had not been successful.

I am grateful to the hon. Gentleman for his question. He expresses exactly why I think it is so urgent that we get on and get the banks to engage in this historical dispute resolution mechanism and look at the detail, so that they are in a position to give compensation urgently. People have been waiting too long, and where such evidence exists, the banks need to respond appropriately and swiftly.

First, I thank the Minister for his response on these issues. As he knows, I have met him on a number of occasions with my constituents to do with their problems, and I just want to put on the record the desperation that they feel. Yesterday, some of them attended the Irish schools— St Patrick’s Day—cup final to protest about Danske Bank, with “Shame on you” on their yellow hi-vis vests to highlight the issue. The Minister quite clearly knows that their story is dreadful—he has seen it—as it all too often involves health issues. When it comes to financial redress, it is compensation we are after. Has the Minister had any opportunity to address the issue of compensation, particularly the issues of the Danske Bank in Northern Ireland, which has false-changed my constituents?

I do not personally have investigative powers, but I do recognise the need to have compensation. That is why we have an increased compensation threshold in the Financial Ombudsman Service, and nothing is ruled out with respect to the resolution mechanism. I would like to acknowledge the work that the hon. Gentleman puts in, and I thank him for his email at 9 am on Boxing day, but I was just surprised he had a day off.