Lloyds, HBOS and the Cranston Review

Gareth Thomas Excerpts

Tuesday 4th February 2020 Westminster Hall

[Kevin Hollinrake]

I absolutely agree with the hon. Lady. This is not just about Lloyds. A number of independent reviews have taken place, but they have been undertaken by the relevant banks. That simply cannot be right, in terms of justice for victims or their feeling that justice has been done. Justice being seen to be done is a basic principle that, it seems, the banking sector does not have to adhere to.

When the APPG was initially talking about future redress, it proposed a financial services tribunal, similar to an employment tribunal, where there would be no adverse costs, so a claim could be taken forward more easily. That would help to reduce the power imbalance between banks and businesses. A comment that came back from one of those commissioning the review on behalf of UK Finance, the banking representative organisation, was that the courts were not the right place for banking disputes to be settled. Well, they are the right place for the rest of us to settle disputes—that is what our system is built upon.

We need impartial, independent processes. I will talk about the right process for that moving forward, because there is an obvious new alternative approach we can take.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I pay tribute to the hon. Gentleman for the way in which he has championed justice for those wronged by Lloyds. He is right to describe this case as one of the worst examples of corporate abuse that many of us in this House can remember. Would he be attracted by the consumer ombudsman model? In this case it was not consumers who were primarily affected, but consumer ombudsmen in other countries—crucially, those with class action powers—can bring actions against big businesses that are guilty of the type of behaviour that the hon. Gentleman describes, on behalf of both consumers and small businesses. Would that not be a powerful addition to the regulatory field and help to hold big banks to justice?

[Kevin Hollinrake]

The hon. Gentleman makes an interesting point, although that is not a model I am familiar with. Class actions are definitely opportunities that are not well exploited the UK because of our legal system. I would be keen to talk to him further about that approach.

Within our system we have the Financial Ombudsman Service, which does not necessarily have the best reputation, although I know the hon. Gentleman is talking about something different. It is a problem that whoever is overseeing cases has to be competent and have the right understanding, because there are complex cases that take into account issues around complicated banking products. We have to ensure that the calibre of arbitration or adjudication is at the right level—I will say more about that shortly. We certainly need reform. Moving forward, we think we have a good solution, but we need to continue to improve on that.

This is not just about Lloyds. There are a number of other redress schemes for banking malpractice and mistreatment that have already been conducted by relevant banks. Banks were the principal arbiters of deciding how much compensation people were allowed to have relating to the interest rate swaps schemes and interest rate hedging products, many of which had a devastating effect on businesses. The debates that we have had about the Royal Bank of Scotland, over the past months and years, have raised similar problems about the mistreatment of small businesses. There are problems with their review process and with others, as other hon. Members have said.

I will describe cases that put that into perspective. The first person to write to me about a business banking dispute was Jon Welsby from Filey, when I first became a Member of Parliament. He showed me a huge file of evidence about his business, but the dispute came down to quite a simple problem. He had been sold a swap by Lloyds bank—they were sold by many different banks—that had had a devastating effect on the interest rates he had to pay. The amount he had to pay rose from about £5,000 a month to £17,000—perversely, as interest rates fell, as that was the way swaps worked. He was given direct losses, but he was not assessed as being due any consequential losses by the bank-led review. He was able to gather together the resources to take his claim to court. It was a £10 million claim, although I am not clear exactly how much he received, as he settled out of court. He was able to settle the claim, whereas most people cannot get the money together to take their claim to court. He had had his claim assessed by the bank and was not happy with it, but because he had the money to get to court, it was settled for a much higher figure. It cannot be right that the only people accessing justice are those with the wherewithal to get to court. Given that imbalance of power, people would need millions of pounds to take a bank to court. It is simply unfair.

The constituent of my hon. Friend the Member for Beckenham (Bob Stewart), Dean D’Eye, came to us about the RBS Global Restructuring Group scheme. He had a property development business and loans to the value of around 60%. He never missed a payment to RBS. He was sold a swap, which damaged his business, but the key moment came when money from a property sale he had made, to add cash flow to his current account, was taken away by the bank and used to reduce debt. According to Mr D’Eye, that broke the agreement and had a devastating impact on his business.