Clydesdale Bank and SMEs

Angela Crawley Excerpts

Tuesday 19th March 2019 Commons Chamber

[Mr Speaker]

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.

[Angela Crawley (Lanark and Hamilton East) (SNP)]

(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 Economic Secretary to the Treasury (John Glen)]

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.

[Angela Crawley]

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?

[John Glen]

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.