LLOYDS Banking Group has been banned from forcing bounce back loan borrowers to sign up to its paid-for business account.
Around 30,000 small business customers were instructed by Bank of Scotland and Lloyds Bank, which are both part of the Group, to apply for a business current account in order to access the government-backed scheme.
But the banking watchdog has argued that this process – known as “bundling” – is unfair, as it says it limits choice for customers.
“Bundling” is where a bank requires small business customers to open a business current account with it when applying for a loan.
The Competitions and Markets Authority (CMA) says this restricts competition and limits choice because customers may want to hold an account with one provider while using a different bank for their loan.
Crucially, you also don't need a business account to apply for a bounce bank loan.
What is a bounce back loan?
BOUNCE back loans are for small companies and sole traders whose businesses have been hit by coronavirus.
Under the scheme, which launched on May 4 and is available until November 4, firms can get loans worth up to 25% of their turnover, up to a maximum of £50,000.
These loans are 100% guaranteed by the government, and it will cover the interest on the loans for the first 12 months.
Businesses are then able to pay back the remaining balance over the next five years at a 2.5% interest rate.
The scheme has been described as a “lifeline” although experts have cautioned firms against rushing into debt.
You can’t apply for a bounce back loan and a coronavirus business interruption loan (CBIL).
The CBIL offers more money – between £50,001 and £5million – but is only 80% backed by the government, meaning it's riskier for banks administering payouts.
As part of their business current accounts, both Bank of Scotland and Lloyds Bank charges customers a monthly fee of £7, plus 85p for every cheque or payment made into the account.
The banks also charge £1 for every £100 in cash deposits up to £1,500 a month, or 90p per £100 for anything over this amount.
As these fees don’t kick in for 12 months, no new customers would have been charged this year as the breach only took place from May 8 onwards.
But the CMA argues that some customers may keep their account open for longer than the fee-free period and will therefore be stung.
The Group says it will now write to affected customers to offer them the choice of switching to a fee-free loans servicing account.
Meanwhile, from the middle of September, anyone applying for a new bounce back loan through the bank will have the choice to do so through a business account or a loans servicing account.
The banks told The Sun they would have contacted customers regardless before any charges kicked in, usually around two months before.
Bank of Scotland and Lloyds estimate that they have approved bounce bank loans for 250,000 customers; of which 220,000 already had a business account with the banks.
Halifax customers are unaffected as the lender doesn't offer business banking.
A spokesperson for Lloyds Banking Group said: “When we launched bounce back loans, we asked customers using personal current accounts for their business needs to open a business bank account.
“This ensured quick access to the funds they needed. Any other solution would have created unnecessary delays at a critical time for businesses.
“We proactively informed the CMA of our approach and are now writing to our customers to reiterate that they can transfer their account to a free loan servicing account at any time, should they wish to do so.”
Adam Land, CMA senior director of remedies business and financial analysis, said: “By forcing businesses to open current accounts as a pre-condition to access this scheme, Lloyds breached the CMA undertakings it signed, reduced choice and put their customers at risk of being unnecessarily charged."
The Sun spoke to three entrepreneurs who set up their own businesses after coronavirus left them jobless.
It comes as shocking research reveals small businesses fear they have just NINE weeks left before the coronavirus crisis means they run out of cash.
Many small firms are struggling after lockdown – here’s how to bounce back.
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