Lloyds Banking Group told to change ‘bounce back’ loan terms

The Competition and Markets Authority (CMA) has criticised Lloyds Banking Group for forcing small business customers to open a business current account when taking out a Bounce Back Loan.

The group, which includes Lloyds Bank and the Bank of Scotland, has admitted that it did not comply with certain aspects of legal undertakings designed to protect customers from anti-competitive practices.

Launched by the UK Government, Bounce Back Loan Scheme is intended to help smaller businesses access finance more quickly during the coronavirus pandemic. Small and medium-sized firms can borrow between £2,000 and up to 25% of their turnover, with a maximum loan of £50,000 available under the scheme.

From 8 May 2020 onwards, Lloyds required around 30,000 customers that were running the finances of their business through a personal current account also to open a business current account with the bank in order to obtain a loan through the Bounce Back Loan Scheme.

The CMA noted that although Lloyds’ new business current account customers would not initially be charged, small business customers may keep their account open for longer than the fee-free period, resulting in charges for an account that may not be well suited to their business.

Working with the CMA, Lloyds has agreed to a number of actions which include writing to customers during September to inform them that:

if they opened a BCA with Lloyds, they are not required to maintain this account for the purposes of a loan under the Bounce Back Loan Scheme, and can choose to switch to another provider at any time while keeping the loan; and

they will be offered the option to switch to a fee-free loan servicing account.

Lloyds has also promised to ensure that any customer that retains the business current account will be reminded of these options two months before any new charges are introduced.

From the middle of September, customers making new applications for loans under the Bounce Back Loan Scheme will have an upfront choice to open either a business current account or a fee-free loan servicing account.

“The Bounce Back Loans Scheme is a key part of the support provided by Government to small businesses during the coronavirus (Covid-19) pandemic,” said Adam Land, senior director of Remedies Business and Financial Analysis at the CMA.

“It is important that signatories to our undertakings participating in this scheme do not restrict the choices of small businesses by bundling loans and business current accounts.

“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.”