Last September I blogged about the possibility of mis-selling claims being raised in relation to the government’s EFG loan scheme. I will not go in to the details of the scheme here. However, since the blogs publication I have spoken to a number of borrowers who have been sold such loans.
It would appear that In many cases the banks did not adequately explain the nature of the scheme’s guarantee to their customers i.e. that the government’s guarantee of up to 75% of the loan only kicked in once the bank had attempted to recover the loan in its entirety from the company or its guarantors (usually directors who had signed the personal guarantees). The result of this was that many borrowers were enticed to take out EFG loans under the mistaken belief that they would only ever be pursued for 25% of the value of the loan in the event of default when in reality they will still liable for the full amount.
Whether these poor explanations came about by way of ignorance or design on the part of the banks’ relationship managers is another question. However it is clear that in some cases there is scope for advancing arguments of misrepresentation with a view to having transactions set aside.
The RBS announcement is welcome news, the admission that some of these EFG loans were mis-sold has paved the way for borrowers to seek redress under review or to seek redress via litigation.
It would appear that the pilot review has come about due to a mixture of consumer pressure and pressure from the British Business Bank, the government body which oversees the EFG scheme. Details on the pilot review’s findings are scarce. The RBS website simply states that:
“RBS has recently undertaken a review to examine whether we clearly explained borrower and guarantor liabilities to EFG customers. Regrettably, the results of the review of a sample of cases have confirmed that, based on statistical analysis of our sample, there are instances where the bank’s explanation did not meet our standards.”
We understand that RBS will now review each of its EFG loans to check whether the guarantee element was explained adequately to the customer. An internal review is also going to take place within RBS to find out what went wrong in the first place.
It would appear that this review will result in compensation for some customers who have suffered “financial detriment” as a result of the loans being called up. RBS aims to put customers back in the position they would have been in had they had only been liable for 25% of the loan. How this review will work in practice and how long it will take is unclear.
The review will be cold comfort to the owners and directors of businesses which have already been wound-up after defaulting on their EFG loans and who may have had personal guarantees enforced. That said misrepresentation arguments set out above could be used as a basis to challenge the enforcement of personal guarantees signed on the back of an EFG loans.
Whilst the review is a positive step forward for those who might be seeking redress, it is worth bearing in mind that the existence of such a process, or even the intimation of a complaint to the bank, is not enough to stop the clock in terms of a mis-selling claim time-barring.
In both Scotland and England & Wales a claim must be raised in Court within a set time period or it will expire (there are some limited exceptions in both jurisdictions).
A claim must be raised in Scotland within 5 years of the loss flowing from the wrongful act.
A claim must be raised in England & Wales within 6 years of the wrongful act, in this case the misrepresentation which led to the loan being taken out.
We have discussed this tricky area in previous blog posts in respect to interest rate swaps. It is a difficult area and we recommend that you take specialist advice.
Iain McDougall, Senior Solicitor, Financial Services & Banking Disputes
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