Business lending is not, and never has been, within the scope of the Financial Conduct Authority’s (FCA) conduct rules. The position that has traditionally been taken in the UK is that the terms and conditions of contracts between businesses (e.g. loans) are not generally prescribed by government. The government is committed to regulating only where there is a clear case for doing so, in order to avoid putting additional costs on lenders that would ultimately lead to higher costs for businesses customer.
However, the smaller end of the business community does receive regulatory protection. In the UK, loans to the smallest businesses (sole traders, partnerships consisting of 2 or 3 partners and unincorporated businesses) of less than £25,000 are treated as regulated consumer credit agreements (CCAs).
This protects consumers, typically in their dealings with banks where there is the potential for consumer detriment. Around three quarters of the 4.8 million UK SMEs are sole traders, partnerships consisting of 2 or 3 partners and unincorporated businesses.
For those loans which are not treated as CCA loans, there is also a clear route of recourse for businesses that feel they have been mis-sold a business loan to pursue. A business’ first recourse should be to its bank’s customer complaints department. This is a route that has been taken by a number of customers. The FCA’s rules require the banks to properly investigate all complaints and, through ongoing supervision, it continues to monitor the banks’ complaint handling process.
Furthermore, micro businesses with a turnover of less than 2 million Euros and fewer than 10 employees have recourse to the Financial Ombudsman Service (FOS). The FOS is an independent, non-governmental body, established under statute to provide for the proportionate, prompt and informal resolution of complaints against financial services firms. It provides a free, independent dispute resolution service for bank customers and has a special team looking at this issue. Its decisions are binding on the firm concerned.
Beyond this, businesses are expected to be responsible for ensuring that contracts they make with other businesses are in their interest. However, if a business believes a bank has acted unlawfully, they can seek to take action through the courts