UK banks prevent £1bn of fraudulent COVID-19 loans
It is estimated that UK banks have prevented more than £1 billion in fraud by rejecting almost 27,000 applications for COVID-19 Bounce Back loans.
The loans been an integral part of the UK Government’s support for small businesses during the pandemic, but concerns are mounting over the scheme’s vulnerability to scammers.
Providing evidence to the Commons public accounts committee, the British Business Bank said lenders had rejected 26,933 bounceback loans over worries that they could be fraudulent. The rejections mean criminals were prevented from stealing £1.1bn from the £40bn scheme.
In total, almost 1.4 million companies have received support across the UK with the majority through the bounceback scheme.
Millions of businesses have relied on the loans throughout the crisis. The Government has said that the scheme could cost the taxpayer between £15bn and £26bn, largely due to fraud, but also because of defaulted loans.
The UK Government told lenders perform only the most basic checks on the businesses they were lending to. The priority was not to stop fraud, but to move to provide billions of pounds for struggling firms.
The letter from the British Business Bank, published before a committee hearing into the scheme, came as business groups and MPs warned that plans to extend the loan scheme to help companies survive the second lockdown in England will be hampered unless lenders open accounts for struggling first-time borrowers.
Barclays, HSBC, Lloyds, Natwest and Santander, have so far accounted for about 90% of the loans distributed to companies across the UK, The Times reports.
In her evidence to the committee, Sarah Munby, permanent secretary at the Department for Business, Energy and Industrial Strategy, told MPs: “We were consciously understanding that there would be fraud because of choices made about the design of the scheme.”
The scheme was launched in May after MPs were told that other support schemes were not reaching some of the smallest businesses in the UK. The government guaranteed 80% of the loans under previous schemes, meaning banks still did the checks they would normally make when lending money.
However, when the bounceback loan scheme launched, the Treasury promised to reimburse the banks for the full loans if they were not repaid. The checks were reduced and money was often paid less than 24 hours after an application was filed.
Sir Tom Scholar, permanent secretary at the Treasury, told MPs the scheme significantly reduced the process of loan application and approval. He said: “On the one hand that certainly made it easier and quicker for businesses to make their applications and for lenders to approve them. But on the other, it reduced the checks that lenders were able to make, it reduced their ability to apply all their normal conditions and minimise the risk of fraud and error and so on.”