Debanking fears as over 140k business accounts closed
MPs have raised concerns over the treatment of small businesses by major banks after figures showed more than 140,000 accounts were shut down by lenders over the past year.
As part of an inquiry into access to finance, the Treasury Committee gathered information from eight banks, including the so-called big four, on how many business accounts had been shut down.
The data showed that out of about 5.3 million accounts held by small and medium-sized enterprises (SMEs), 141,620 were forcibly closed by banks – 2.7% of the total.
The banks – Barclays, HSBC, TSB, Lloyds, Santander, NatWest, Metro Bank and Handelsbanken – gave a variety of reasons.
Lloyds and NatWest were among those who cited concerns about financial crime and fraud while HSBC UK said that about two thirds of the more than 26,000 accounts it closed in the 12 months to the end of October were related to customers’ “financial viability”, or the accounts being dormant.
But the committee said it was concerned that banks were giving a range of reasons for readily closing down business accounts with little or no notice.
It highlighted that just three banks blamed “risk appetite” as a reason behind forced closures, with about 4,200 cases listed.
Committee chair Harriett Baldwin said: “The fact that only three lenders included ‘risk appetite’ in their criteria indicates these discussions may not be systematically recorded – leaving questions over whether decisions on the debanking of certain businesses, based on what banks perceive as a risk, are happening informally.”
Harriett Baldwin. File pic
“We can see from these figures that thousands of small businesses fall foul of their bank’s risk appetite definition, leaving them without access to a bank account.
“I hope publishing this data can aid scrutiny of the decisions taken by banks and help to ensure legitimate businesses are not being unfairly treated.”
Martin McTague, national chair of the Federation of Small Businesses responded: “The number of small firms affected by debanking is high, and underlines the need for the FCA to shed light on this issue, by requiring banks to publish quarterly statistics.
“These should include the reasons for the bank’s decision to close an account, and demographic information on affected businesses, to keep tabs on whether certain groups are being disproportionately affected.
“Having your bank account closed suddenly – with little to no notice – is immensely disruptive to a small firm. You can’t pay staff or suppliers, while incoming funds will be delayed, putting pressure on cashflow and your ability to continue trading at all.
“Where possible, banks should give a reasonable amount of notice that they intend to close an account, and should share the reasons behind the decision, in case there has been a misunderstanding which the customer can clear up.”
The figures were published by the committee ahead of evidence, due later today, from Economic Secretary to the Treasury Bim Afolami.
He is expected to face questions on whether small businesses are being treated fairly by banks.
A separate report by the All-Party Parliamentary Group on Fair Business Banking, released recently, cast doubts on whether banks could be wrongly labelling customer accounts as a fraud risk to cover up concerns about costs and their reputation.
It found banks are more driven by profit and reputation, rather than tackling financial crime, when they decide to debank a customer.
The scrutiny by MPs is taking place against a backdrop of wider concern over the treatment of individuals.
The issue shot to prominence through the Nigel Farage debanking row last year that, ultimately, cost the the-then NatWest chief executive her job.
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A spokeswoman for the FCA said earlier this month: “Under the law, banks and building societies can make commercial decisions about which customers they serve.
“We have said before that it might be time to look at whether all individuals, businesses and organisations should have the right to an account but it would be for the government and parliament to legislate for that.
“Within our remit, we are clear that banks should treat individual customers fairly and act proportionately to tackle financial crime. If we find firms are not doing that, we will act.”
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The average two-year mortgage rate has fallen below 5% for the first time since the Liz Truss mini-budget.
The interest rate charged on a typical two-year fixed mortgage deal is now 4.99%, according to financial information company Moneyfacts.
It means there are more expensive and also cheaper two-year mortgage products on the market, but the average has fallen to a near three-year low.
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Not since September 2022 has the average been at this level, before former prime minister Liz Truss announced her so-called mini-budget.
The programme of unfunded spending and tax cuts, done without the commentary of independent watchdog the Office for Budget Responsibility, led to a steep rise in the cost of government borrowing and necessitated an intervention by monetary regulator the Bank of England to prevent a collapse of pension funds.
It was also a key reason mortgage costs rose as high as they did – up to 6% for a typical two-year deal in the weeks after the mini-budget.
Why?
The mortgage borrowing rate dropped on Wednesday as the base interest rate – set by the Bank of England – was cut last week to 4%. The reduction made borrowing less expensive, as signs of a struggling economy were evident to the rate-setting central bankers and despite inflation forecast to rise further.
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It’s that expectation of elevated price rises that has stopped mortgage rates from falling further. The Bank had raised interest rates and has kept them comparatively high as inflation is anticipated to rise faster due to poor harvests and increased employer costs, making goods more expensive.
The group behind the figures, Moneyfacts, said “While the cost of borrowing is still well above the rock-bottom rates of the years immediately preceding that fiscal event, this milestone shows lenders are competing more aggressively for business.”
In turn, mortgage providers are reluctant to offer cheaper products.
A further cut to the base interest rate is expected before the end of 2025, according to London Stock Exchange Group (LSEG) data. Traders currently bet the rate will be brought to 3.75% in December.
This expectation can influence what rates lenders offer.
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