RBS Admits Mis-Selling Taxpayer-Backed Scheme

Royal Bank of Scotland (RBS) is contacting 1,800 small business customers who are believed to have suffered under the latest mis-selling scandal to hit the bank.

RBS said the issue came to light following a review of customer files following complaints to the British Business Bank, the Government body overseeing the Enterprise Finance Guarantee (EFG).

The scheme, set up in 2009, has seen RBS loan more than £900m to 9,000 small firms who would otherwise have found it difficult to access credit.

RBS said: "This exercise identified a number of instances where we have not properly explained to customers how borrower and guarantor liabilities work under the EFG scheme.

"We will now be implementing a thorough and proactive review of affected and potentially affected customers to ensure they are put back in the position they believed they would have been in."

The EFG provides a 75% Government guarantee to lenders willing to back viable small businesses to aid the economy.

Some RBS customers were incorrectly led to believe that the guarantee was for their benefit rather than the bank's - and did not realise that they remained liable for 100% of the loan.

Of the 1,800 customers being spoken to, all either defaulted or found themselves in a "stressed" financial position.

Business Secretary Vince Cable met RBS executives on Wednesday to discuss the issue, previously exposed in an investigation by The Times newspaper.

The affair is the latest damaging episode related to the lender's treatment of small business customers after it was previously accused of pushing firms to the wall so it could buy back their assets at rock-bottom prices.

RBS has also been rocked by scandals including foreign-exchange rate rigging, Libor rate fixing and the payment protection insurance mis-selling scandal.