RBS has recently admitted mis sales of EFG Loans. What exactly constitutes mis-selling will vary in each case but it is likely that the borrowers believed they may ultimately be liable only for 25% of the original loan amount. This is of course incorrect. Here is an extract from the Government's published guidance"
"The guarantee provides protection to the lender in the event of default by the borrower – it is not insurance for the borrower in the event of their inability to repay the loan. The borrower is responsible for repayment of 100% of the facility, not just the 25% outside the coverage of the government guarantee. Where defaults occur, the lender is obliged to follow their standard commercial recovery procedure, including the realisation of security, before they can make a claim against the government guarantee."
It is difficult to see how, with such clear guidance, Banks could have mis-represented the position However if it is the case that the Bank 'mis-sold' the loan in this way then the borrower may have a defence to some or all of any claim for repayment under the original loan.
If in addition the business owner was required to give a personal guarantee of the borrower's liability and the representations made by the bank were also made to the prospective guarantor then there are certainly arguments that the guarantee liability is either substantially reduced or on some cases eliminated entirely.
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