In a report on the conduct and competition surrounding bank lending to SMEs, the TSC said evidence suggested that Clydesdale had mis-sold tailored business loans (TBL).
Additionally the bank admitted that terms and conditions letters sent to TBL customers would not pass a plain English test.
The TSC accused the bank of failing to explain to customers the potential risks involved with TBL products, adding that customers could not be reasonably expected to anticipate potentially high levels of break costs.
TBL products differ from other interest rate hedging products (IRHP) in that they are unregulated. This means that regulators are now powerless to enforce compensation for customers who were mis-sold TBL by Clydesdale.
Andrew Tyrie, chair of the TSC, said, “The gap in the regulatory perimiter meant that the product created by Clydesdale Bank was not covered by the usual safeguards.
“Many of its customers did not understand the product and could not have been reasonably expected to do so.
“Regulators have been powerless to provide redress to those affected by wrongdoing.”
The TSC was scathing about Clydesdale’s internal control mechanisms. The committee cited a lack of public oversight, minimal transparency and limited coverage of TBL products by the bank for its low confidence in the bank’s internal review.
“Clydesdale’s own internal review of potential mis-selling appears to have serious short comings,” Tyrie said. “It lacks public oversight, transparency and is limited in scope. All three of these problems need to be addressed by Clydesdale.”
A spokesperson for Clydesdale said that the bank would carefully consider the TSC report, and that it would continue to make progress in providing compensation to customers where appropriate.
The spokesperson said, “Since the Committee took evidence from the bank last June, we have made good progress in our review of complex TBLs and in paying suitable redress to our customers, if necessary.
“We have also reviewed almost all complaints about fixed rate TBLs and are in the process making payments or formalising offers where appropriate.”
Commenting on the issues surrounding the wider remit of IRHP, the committee said that the Financial Conduct Authority (FCA) had unfairly treated those SMEs that had already been “ripped off” by complicated IRHP schemes.
The TSC said that the FCA needed to clarify the effectiveness of its redress process, as the committee had been unable to ascertain whether complaints were isolated cases or symptomatic of systemic problems.
Tyrie said, “The FCA should collect the information necessary to establish wheter there are systemic failures in the review. This would benefit from independent oversight [and] it should publish its findings.
“Greater transparency is crucial in order to ensure that those SMEs mis-sold these products receive – and are seen to receive – appropriate redress.
“The financial services act provides for the Treasury to require for this type of work to be done, but hopefully this won’t be necessary.”
A spokesperson for the FCA said, “We are considering the committee’s report, but nothing more at this stage.”