Yahoo Finance NatWest counts the cost of ‘unenforceable’ Covid loan blunder
NatWest is to miss out on a wave of interest payments on Covid loans after telling borrowers their debts are unenforceable in court.
The bank has written to around 150 business customers in recent weeks to tell them they will not be charged any interest on their Coronavirus Business Interruption Loans (CBILs), The Telegraph can reveal.
The FTSE 100 lender said the CBILs are “unenforceable through the courts” as a result of a “technical error”, which it blamed on internal constraints as the bank rushed to dish out the cash at the height of the pandemic.
It is understood that the bank has reported the issue to the City regulator.
In a letter to borrowers, seen by The Telegraph, NatWest said: “We want to let you know that due to product and system constraints when setting up your CBIL, the annual statements you will receive for your loan will be incorrect.
“As a result of this technical error, we are unable to charge interest on your CBIL… This also means that the debt is unenforceable through the courts.”
The bank has told borrowers that it will still demand that the loans are repaid in full.
NatWest declined to comment on the value of the 148 loans involved in the blunder, but given the scale of the CBIL programme, their value could range from anywhere between £7.4m and £740m.
The CBILs programme was launched by Rishi Sunak in March 2020 in a frantic attempt to keep businesses afloat as the country was plunged into lockdown.
It allowed businesses with annual turnover of between £100,000 and £45m to take out emergency loans ranging from £50,000 to £5m. The Treasury guaranteed 80pc of the loan, while borrowers did not have to pay any interest during the first year.
NatWest lent a total of £3bn during the pandemic via CBILs to around 16,000 customers.
Despite the loans being unenforceable through the courts, NatWest told the impacted customers that they are still obliged to pay back the debt and it will use other methods to enforce repayment.
The letter to borrowers said: “Please be aware you are still legally obliged to pay your CBIL and in the event of non-repayment, we would still be able to take all other appropriate action to recover the outstanding balance if required. Any non-repayment may also impact your credit file.”
The revelation comes amid criticism that Covid-era lending schemes lacked adequate checks and failed to protect against widespread fraud.
A total of £1.1bn of state-backed loans handed to small businesses during the pandemic have been classified as fraudulent so far, according to the latest government data.
The National Audit Office estimated that the total figure for fraudulent claims could rise as high as £5bn.
A NatWest spokesman said: “Due to a technical issue, a very small number of our business customers who took a CBIL will no longer be charged interest on their loan. We have written to this impacted group, who are still liable to repay their balance in full.
“This is in line with our obligations under the Consumer Credit Act and the terms of the scheme, and we have apologised to the impacted customers for the error.”
