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SME Banks Tribunal: A New Way for Small Businesses to Challenge Lenders?

In the wake of the 2008 bank lending scandals small businesses have lost trust in banks and lenders. Kevin Hollinrake MP, Vice-Chair of the All Party Parliamentary Group for Fair Business Banking, has publicly recognised the need to remedy this distrust in his recent call to set up an SME bank tribunal. The tribunal would exist solely for the resolution of SME disputes with banks and litigation against malpractice they have been subjected to.

This development is particularly pioneering considering the pre-existing options available to SMEs: taking the lenders to court or appealing to the Financial Ombudsmen Service (FOS). The court route is not only long-winded and expensive, but often leaves small businesses vulnerable to financial ruin as they may be liable to pay the bank’s legal costs if they lose. Despite being more affordable the FOS comes with its own accessibility issues as its services are limited to micro businesses. Inevitably many small businesses will fall in between these options, being both unable to afford to take banks to court and too large to qualify for the FOS. 

Hollinrake’s SME bank tribunal would, at least in theory, remove these barriers and be a highly accessible route to lodge disputes. It would be funded by the banks themselves, significantly reducing the financial risk currently taken on by small business owners who take banks to court. Additionally, it would allow the FOS to open its services to a wider range of SMEs, expanding to include businesses with less than £65 million profit and fewer than 50 employees. Beyond the benefits to individual businesses and business owners, the tribunal would encourage banks to take more accountability and lead to a long-term increase in trust between SMEs and banks, meaning more lending and growth on a large scale. This is certainly Hollinrake’s hope, as he has affirmed that “we absolutely can’t have a situation when businesses won’t borrow because they’re afraid of the risks.”

While the FCA is consulting on the proposal, it has already stimulated much interest. UK Finance which represents the finance industry’s interests has already commissioned its own independent review into alternatives, the SME Alliance have emphasised the importance of an alternative to the FOS, and a Lloyds spokesperson has claimed that they are open to options. However, the overall support from banks is still nebulous at best, and the tribunal would need a significant power to sanction banks in order to be effective in achieving the goals laid out.

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