Government lacks understanding of challenges facing SMEs in dispute with banks, say MPs

Kevin Hollinrake MP
Kevin Hollinrake MP
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An influential group of MPs has accused the Government of lacking a fundamental understanding of the challenges facing business people who have been mistreated by the banks.

The All Party Parliamentary Group on Fair Business Banking has criticised the Government’s failure to support plans for a new tribunal to protect SMEs (small and medium-sized enterprises) from banking misconduct.

Instead, the Government believes an ombudsman-style approach is preferable to a tribunal because an ombudsman has the ability to make judgements based on what is “fair and reasonable” in the circumstances of the case. The Government also claims that the ombudsman offers a less expensive process for SMEs and allows decisions to be made more quickly.

In its response to the Treasury Select Committee’s SME finance inquiry, the Government said: “The Government is pleased that there is a consensus that expanding eligibility to take a complaint to the FOS (Financial Ombudsman Service) to more SMEs is the right thing to do.

“The introduction of ‘small business’ as a new category of eligible complainant for the FOS, which is defined as businesses with a turnover of less than £6.5m and either fewer than 50 employees or a balance sheet of less than £5m, will give an additional 210,000 SMEs access to the FOS, meaning that well over 99 per cent of businesses will be eligible to take a complaint to the FOS from April 1 2019.”

The Government said it welcomed the FOS’s commitment to creating a ring-fenced, specialist unit supported by a panel of external SME experts. The Government has also supported the Financial Conduct Authority’s consultation on increasing the FOS award limit to £350,000.

In its response, the Government said it noted the suggestions of both the APPG and Simon Walker, the former Director-General of the Institute of Directors, that there should be access to a dispute resolution service for businesses above £6.5m turnover.

The report added: “The Government believes that the banking industry’s proposal to establish a voluntary ombudsman scheme by September next year to resolve complaints from businesses with a turnover between £6.5m and £10m rises to this challenge.

“It is the Government’s view that businesses with a turnover greater than £10m can reasonably be expected to be in a position to go to court.”

In a statement, the APPG said: “The Government’s response demonstrates a fundamental lack of understanding of the challenges that businesses face when resolving disputes with their finance providers.

“The question is not, as the Government suggests, whether an ombudsman-style approach is preferable to a tribunal.

“We have recognised, as have the FCA, that these two approaches are complementary and meet different needs for different types of disputes. The ombudsman provides a quick, affordable and informal mechanism for the vast majority of low-value claims.

“But the Government must recognise the limitations of an ombudsman-style approach and recognise the fact that the eligibility requirements, and award level limit, create a gap in accessing justice which must be filled by a Financial Services Tribunal.”

The co-chair of the APPG, Kevin Hollinrake MP, said: “It is an entirely unreasonable proposition to suggest that a business with a turnover greater than £10m can be expected to be in a position to go to court.

He added: “The APPG is frequently contacted by business owners, who have a turnover more than double that figure, but are unable to take a multi-national financial institution to court. There is no way that this can be put forward as a complete solution.”

MPs have spoken about the gap that exists for constituents who want to have their cases heard in a forum that is independent, fair, accessible and affordable, the APPG said.

The APPG is calling for judgements to be made by individuals with the knowledge and capability to adjudicate on complex business banking disputes.

The APPG said: “The current proposals on the table categorically do not fill this gap.”

The Republic of Ireland regulated its commercial lending in 2015, the APPG said. Research indicates that new SME lending in Ireland increased by more than 51 per cent from the end of 2014 to the start of 2018, the APPG added.

A Treasury spokesperson said: “Our response to the Select Committee speaks for itself, we have nothing else to add.”