Former Tory cabinet minister Theodore Agnew has launched a public attack on Starling Bank, dragging the online lender into the Covid lending scandal by claiming it failed to carry out adequate checks on borrowers before providing secured loans by taxpayers.
During the pandemic, the UK government relied on big banks and online banks to distribute £47billion to small businesses under the Bounce Back Loan Scheme, which offered up to £50,000 per business . The Treasury has promised to cover 100% of losses if borrowers do not repay. In the rush to distribute the money, critics say minimal checks have been carried out to prevent fraud and the cost to the taxpayer could be as high as £5billion.
Lord Agnew, who resigned as Fraud Minister in January over the Government’s ‘dismal’ efforts to tackle fraud, spoke publicly on Wednesday evening to say banks should be ‘very cautious” before exploiting the government guarantee.
However, he chose Starling Bank and accused the lender of using the scheme to his own advantage. “With minimal data, I cannot analyze the full extent of the crimes, but I would like to call out one of these banks that I believe has acted against the interests of government and taxpayers: it is the Starling Bank,” he told guests at an anti-fraud event in Westminster.
Starling Bank chief executive and founder Anne Boden said she was “shocked” by Agnew’s comments and called on the former minister to retract his statements. Boden said Starling had been open and transparent about its approach to loan repayment and was one of the “most active and effective banks in the fight against fraud”.
Agnew pointed to a significant increase in the bank’s loan balances since the program’s inception. In November 2019, before the pandemic, Starling had loaned just £23million, excluding loans bought from other companies. By June 2021, according to a business update from the firm, it had dispensed £1.6bn in bounce-back loans.
The bank disbursed a further £640million under the wider coronavirus business interruption loan scheme, which offered up to £5million to a borrower.
The former Tory minister, who has pushed for greater transparency around the scheme, said from ‘what little data’ he was able to gather in government, Starling ‘was one of the worst when it was to validate the turnover of the companies or to submit suspicious information. activity reports.
“It seems to me that they took this as a divine opportunity to inflate their balance sheet by a factor of 50 in just under a year, with no risk to themselves and 100% to the taxpayer,” Agnew said. . He claimed it was a “gratuitous marketing exercise to build up their loan portfolio and therefore the valuation of their business”.
Boden said on Thursday that the bank had introduced additional controls, including for independent traders, and had excluded all non-operating companies and those incorporated after March 1, 2020 – the cut-off point for accessing Covid loans – from the program.
“The comments raised by Lord Agnew about not verifying companies’ turnover or submitting suspicious activity reports are absolutely and utterly untrue and I must ask him to retract his statement,” Boden said.
While Starling’s bounce loan fraud rate was higher than other banks, at 3.5% of money loaned, this was solely because Starling had been “better and faster” at identify fraud than his peers. “On duplicate loans, for example, we uploaded loan data within days. Some other banks took months,” she said.
“I agree with Lord Agnew that we need to protect taxpayers’ money,” Boden added. But “directing its anger at Starling is simply wrong – we were the bank that was criticized by Treasury officials, ministers and MPs, for rejecting so many would-be fraudsters”.
Sign up for the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
The rebound loan scheme, which was launched by the Treasury and overseen by the British Business Bank, removed additional credit checks and allowed borrowers to self-certify their income to ensure money was distributed quickly to businesses at the height of the pandemic. . While big banks, including NatWest and HSBC, limited bounce-back loans to existing customers, smaller banks such as Starling were seen as a lifeline for independent traders who didn’t have accounts at big banks.
“We couldn’t leave our small business customers without access to these loans,” Boden said.
Rebound loans ended up being the biggest scheme in the Covid loan scheme, doling out a total of £47billion to 1.6million recipients.
Agnew said earlier this year that 87% of bounce-back loans that have been disbursed to already-dissolved companies – considered a form of fraud – came from just three lenders, and that two banks were responsible for 81% of cases where loans were granted to companies incorporated after the pandemic. He did not disclose the names of the banks in question.
