Loans – Banks raid accounts to claw back Covid loans

Banks are raiding business accounts to claw back emergency bounce back loans that were obtained fraudulently, The Mail on Sunday can reveal. 

HSBC, Barclays, NatWest and Lloyds Banking Group have all begun freezing business accounts linked to suspected fraud. 

They have seized sums of up to £50,000 from the accounts of hundreds of customers. 

The radical move to clamp down on criminal activity comes after the National Audit Office – the Government’s spending watchdog – warned last year that taxpayers faced having to foot a bill of up to £26billion to cover fraud and defaults on Chancellor Rishi Sunak’s flagship business recovery scheme. 

Grab: HSBC, Barclays, NatWest and Lloyds Banking Group have all begun freezing business accounts linked to suspected fraud

More than 1.43million bounce back loans of up to £50,000 each have been issued since the scheme launched last May as a lifeline to get firms back on their feet after the first Covid lockdown. 

A letter to one customer from HSBC, seen by The Mail on Sunday, revealed it had ‘formally terminated’ a bounce back loan agreement and demanded that the customer ‘repay immediately all monies advanced to you’. 

The bank told the customer that a clause in the agreement meant it did not need permission to dip into the firm’s current account to recover some of the cash. 

This entirely legal tactic is sometimes used by banks to recover overdue credit card or loan debts from customers who have money deposited. 

Banks are understood to be excluding any state aid the company has received when they work out how much to seize. 

One banker said ‘several hundred’ such letters had been sent out by their bank alone. 

Bounce back loans are 100 per cent backed by the taxpayer, meaning banks do not shoulder any risk if the money is never repaid. 

Companies can borrow up to £50,000 with no interest or capital repayment due for the first year. Interest of 2.5 per cent kicks in over ten years. So far £43.5billion has been loaned since May. 

To dish out the cash quickly, banks were told to lend with limited checks, meaning companies would self-certify their income. Business customers needed a current account with the bank in order to receive the loan cash. 

Now banks are coming under growing pressure to weed out fraudsters. 

The bounce back scheme helps smaller firms access finance quicker during the pandemic

The Treasury issued a stark warning to banks last Thursday to remind them of the importance of fraud checks, according to a Whitehall source. 

The Mail on Sunday revealed last August that greedy business owners, criminal gangs and rogue landlords were exploiting loopholes in the scheme. 

Some were applying for multiple loans, while others had used the cash to buy expensive sports cars and to fund lavish home improvements. 

In one example of fraud, a lender saw ‘several hundred applications made from the same address’. 

In October, a National Audit Office probe concluded that up to 60 per cent of loans may not be repaid because of fraud and defaults. That represented a sum of £26billion at the time.

In most cases, money is not being clawed back from business accounts until after the suspected fraud has been fully investigated.

Banks came under fire for their heavy-handed treatment of small business customers after the 2008 financial crisis and they are keen to avoid another scandal. 

A spokesman for the Treasury said: ‘Our loan schemes have provided a lifeline to thousands of businesses across the UK – helping them survive the pandemic and protecting millions of jobs. 

‘We targeted this support to help those who need it most as quickly as possible and we won’t apologise for this.’ 

The spokesman said the Treasury had taken action to minimise fraud, pointing out that banks use anti-money laundering and fraud checks, as well as transaction monitoring. 

‘Any fraudulent applications can be criminally prosecuted, for which penalties include imprisonment or a fine or both,’ the spokesman added. 

A replacement for the bounce back loans scheme is likely to be detailed in the Budget in March.