Former Tory minister Theodore Agnew has launched a public attack on Starling Bank, dragging the online lender into the Covid loans scandal by claiming it did not run adequate checks on borrowers before handing out taxpayer-backed loans.
During the pandemic, the UK government relied on high street and online banks to hand out £47bn to small businesses under the bounce back loan scheme, which offered up to £50,000 a company. The Treasury promised to cover 100% of the losses if borrowers failed to repay. In the rush to distribute money, critics say minimal checks were made to prevent fraud and the cost to the taxpayer could be as much as £5bn.
Lord Agnew, who quit as the anti-fraud minister in January over the government’s “woeful” efforts to control fraud, spoke publicly on Wednesday evening to say banks should be “very careful” before tapping the government guarantee.
However, he singled out Starling Bank and accused the lender of using the scheme for its own benefit. “With minimal data, I cannot analyse the full extent of the misdemeanours, but I’d like to call out one of these banks that I believe has acted against the government’s and taxpayer’s interests: this is Starling Bank,” he told guests at an anti-fraud event in Westminster.
Starling Bank’s chief executive and founder, Anne Boden, said she was “shocked” by Agnew’s comments, and has asked the former minister to withdraw his statements. Boden said Starling had been open and transparent about its approach to bounce-back loans and was one of the “most active and effective banks fighting fraud”.
Agnew pointed to a significant rise in the bank’s lending balances since the scheme went live. Back in November 2019, before the pandemic, Starling had only lent £23m , excluding loans bought from other companies. By June 2021, according to a company trading update, it had distributed £1.6bn worth of bounce-back loans.
The bank disbursed a further £640m under the larger coronavirus business interruption loan scheme, which offered up to £5m a borrower.
The former Tory minister, who has pushed for greater transparency around the scheme, said from “what little data” he was able to gather while in government, Starling “were one of the worst when it came to validating the turnover of businesses or submitting suspicious activity reports”.
“It seems to me that they took this as a God-sent opportunity to swell their balance sheet by a factor of 50 times in barely less than a year, with no risk to themselves and 100% risk to the taxpayer,” Agnew said. He claimed that it was a “cost-free marketing exercise to build their loan book and so their company valuation”.
Boden said on Thursday that the bank had introduced extra checks including for sole traders, and had excluded all non-active companies, and those that were incorporated after 1 March 2020 – the cut-off point for accessing the Covid loans – from the scheme.
“The comments raised by Lord Agnew about not checking the turnover of businesses or submitting suspicious activity reports are absolutely and utterly wrong and I must ask him to withdraw the statement,” said Boden.
While Starling’s bounce-back loan fraud rate was higher than other banks, at 3.5% of money lent, this was only due to the fact that Starling had been “better and quicker” at identifying fraud than its peers. “On duplicate loans, for example we uploaded lending data within days. Some other banks took months,” she said.
“I agree with Lord Agnew that we must protect taxpayer’s money,” Boden added. But “directing his anger at Starling is just wrong – we were the bank that was singled out for criticism by Treasury officials, ministers and MPs, for rejecting so many potential fraudsters”.
The bounce-back loan programme, which was launched by the Treasury and overseen by the British Business Bank, scrapped extra credit checks and allowed borrowers to self-certify their income in order to ensure money was distributed to businesses quickly at the height of the pandemic. While major banks including NatWest and HSBC restricted bounce-back loans to existing customers as a result, smaller banks such as Starling were considered a lifeline for sole traders that did not have accounts with major banks.
“We could not leave our small business customers without access to these loans,” Boden said.
Bounce-back loans ended up being the biggest scheme in the Covid loan programme, distributing a total of £47bn to 1.6 million recipients.
Agnew said earlier this year that 87% of the bounce-back loans that were paid to already dissolved companies – considered a form of fraud – came from just three lenders, and that two banks were responsible for 81% of cases where loans were granted to companies incorporated after the pandemic hit. He did not divulge the names of the banks in question.