In a recent development, Clydesdale Bank, now part of Virgin Money (LON:VM), and its former owner, National Australia Bank (OTC:NABZY) (NAB), are facing a High Court trial over allegations of unfair break fees on tailored business loans. The banks are being sued by RGL Group led by James Hayward, representing four firms and a larger group of 900 small businesses. The case could potentially cost the banks hundreds of millions of pounds.
The plaintiffs allege that the banks mis-sold complex interest swap loans to thousands of small and medium-sized enterprises (SMEs) between 2002 and 2010. They claim losses due to early repayment break fee costs and fraudulent misrepresentation of the fixed loan rate, which included an unexplained “added value” income element. The barrister for the plaintiffs, Andrew Onslow KC, is demanding damages for breach of contract or restitution for unjust enrichment.
Specific allegations include falsely demanding break costs for early loan terminations and adding a hidden margin to inflate interest rates on fixed rate commercial loans. This lawsuit comes as part of a broader scrutiny on banking practices related to SME lending.
In response to these allegations, Clydesdale Bank has refuted RGL's claims. Defending the banks, barrister Bankim Thanki KC denies all allegations and asserts that the loan terms justified the break costs. He also refutes the alleged misrepresentations by bank staff. Clydesdale Bank had previously suggested such practices were widespread in the industry as a defence.
As of Tuesday, National Australia Bank has not yet responded to these allegations. The unfolding legal battle marks another significant event in the ongoing scrutiny of bank lending practices to SMEs.
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