Royal Bank of Scotland is facing allegations of "unscrupulous" treatment of small businesses in a report claiming the lender drove firms to collapse to buy back their assets at rock-bottom prices.
Businessman Lawrence Tomlinson, who is entrepreneur in residence at the Department for Business, Innovation and Skills, said he had uncovered a dossier of evidence alleging that taxpayer-backed RBS has deliberately forced companies into default to seize their properties.
His report into small business lending practices across the sector contains explosive accusations against RBS, which have now been passed to the City watchdogs by Business Secretary Vince Cable.
Mr Tomlinson, who has been compiling the report independently for the past six months, focuses allegations on the turnaround division at RBS - its Global Restructuring Group (GRG).
The division handles loans classed as being risky and is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.
But the report alleges that firms not necessarily in immediate financial distress are “engineered” into GRG, sometimes through small technical breaches of loan terms, such as late filing of minor financial information.
They are then hit with exorbitant rates and fees, which in some cases cause them to collapse, allowing RBS to buy their property and assets on the cheap for the benefit of its West Register property arm, according to Mr Tomlinson.
His report claims that fees charged by GRG can run into hundreds of thousands of pounds. Mr Tomlinson said he was calling for “immediate action to stop this unscrupulous treatment of businesses”.
He added: “From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price.”
He added: “There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners.
“I look forward to seeing how RBS proposes to take forward the forensic investigation into this part of the bank.”
The report found a “disproportionately high” number of complaints against RBS, but also found examples of similar practice at other banks.
Fellow part-nationalised player Lloyds Banking Group is also criticised for concentrating on short-term gain at the expense of its business customers.
The report said Santander UK was among a few banks that were praised by small business customers for their treatment.
Mr Cable confirmed yesterday that evidence against RBS in the report had been referred to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). He said: “Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken.
“I am, however, confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium sized businesses.”
Mr Cable added he had passed the report to Sir Andrew Large - the former deputy governor of the Bank of England, who is also publishing his full review into small business lending at RBS today. RBS said it was “already committed” to an inquiry on how it treats small firms, following recommendations by Sir Andrew.
A spokesman said that GRG’s role was key to helping the bank face up to its commercial property “mistakes” made in the run up to the financial crisis.
He said: “GRG successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved.”