The Federation of Small Businesses (FSB) has lashed out at the City regulator’s response to its “super complaint” regarding personal guarantees (PGs), saying it is “just not good enough”.
The FSB had said that lenders’ excessive use of PGs is dissuading smaller firms from accessing the finance they need to grow.
In response, the FCA said it will collect data on the number of PGs in place for sole traders and small partnerships, will work with the Financial Ombudsman Service to monitor the levels of complaints about this issue, and consider whether lenders need further guidance on PGs.
However, it said that limited companies fall outside of its remit.
Martin McTague, the FSB’s national chair, criticised the FCA’s response as not going far enough.
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“Our super-complaint outlined why there is a potentially a systemic problem when it comes to personal guarantees, and the chilling effect they have on growth and investment,” he said. “For the FCA to refuse to gather evidence from regulated lenders, which would illustrate the scale of the problem affecting limited companies is illogical.
“The fact that the FCA has failed to even gather any evidence on lending to limited companies, only increases the urgency for Treasury to consider an expansion of the regulatory perimeter.”
McTague went on to say that PGs sit in a “twilight zone” in terms of regulation, as they turn a loan to a limited company into a personal liability, yet the business owner is not covered by the same types of consumer protections that exist for other types of lending.
“We strongly believe the FCA ought to have gathered data on the extent to which PGs are being requested by regulated lenders, and to assess the economic damage caused as a result,” McTague added. “Data is also needed to assess whether particular groups or types of would-be borrowers are affected by the issue more than others. Individual borrowers have very little recourse when set against the power held by the banks.”
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As part of its investigation, the FCA said it would share any relevant information it finds with appropriate government departments – in particular the Treasury as it considers reforming the Consumer Credit Act.
McTague said there is a “strong case” for expanding the FCA’s remit to include PG-backed loans to limited companies.
“We will be keen to discuss this with the Treasury in due course – whoever is in power,” he added.
