At the end of last month, the Competition and Markets Authority (CMA) published a letter written to Danske Bank concerning its breach of the Small and Medium-sized Enterprise (SME) Banking Behavioural Undertakings 2002, following loans it had offered under the ‘Bounce Back Loan Scheme’.
The letter, published on 30 March 2021, outlined the breach of the behavioural undertakings that had been given by Danske Bank (amongst others) following a 2002 report by the Competition Commission on the supply of banking services to SMEs. The undertakings agreed that the banks would no longer require SME customers to open or maintain a business current account as a prerequisite to a business loan (a practice known as ‘bundling’). They aimed to “preserve choice for small businesses with regard to which banking services they use, allowing them to select their preferred business account provider independently of any lending relationships” (see letter of 31 March).
The ‘Bounce Back Loan Scheme’ was launched by the Government on 4 May 2020. It was designed to allow smaller companies to access financing options more easily during the Covid 19 pandemic. Danske Bank started providing loans under this scheme to its customers, and informed the CMA of its view that this approach was in compliance with the undertakings. Following further enquiries, the bank reported to the CMA its requirement for 268 customers to open a business current account before it would consider a bounce back loan application, and 37 customers who had opened the account but had not yet reapplied. In the bank’s view, this was a way for it to meet customer demand for support, its legal obligations and fraud checking requirements of the scheme.
However, the CMA considered that the requirement for those customers to open business current accounts in order to apply for the loan (which they might otherwise have not needed, or wanted), was in breach of the behavioural undertakings the bank had previously signed. The letter referred to the charges and fees applied by the bank to the business current accounts, and that the breach was therefore “likely to have inflicted financial harm on these customers.”
Having agreed to end the breach, the bank voluntarily took a number of steps to mitigate its impact - outlined in its action plan. This included writing to the affected customers to apologise for the breach, offering to refund all charges incurred as a result (plus compensation at 8% interest) and offering customers the option to switch to a fee-free loan servicing account to service the loan moving forward. In addition this fee-free account was also offered as an alternative to new customers. The CMA’s letter confirmed that in the circumstances it did not consider it necessary to take formal enforcement action at this time but it would continue to monitor the issue.
The letter follows in the footsteps of similar letters issued by the CMA to Lloyds Banking Group (8 September 2020) and Clydesdale Bank (5 February 2021). It serves as a reminder of the CMA’s powers in relation to the banking behavioural undertakings and reflects the remedial steps taken, which were in this case sufficient to avert any formal enforcement action. It is also worth noting the challenging circumstances posed by the coronavirus pandemic and the necessary support offered by the loan scheme, which were clearly considerations in the CMA’s assessment of this breach.