Home Editor's Pick Starling Bank Intensifies Legal Pursuit of Covid Loan Defaulters

Starling Bank Intensifies Legal Pursuit of Covid Loan Defaulters

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Starling Bank, the digital-only lender, is stepping up its legal actions against businesses that defaulted on state-backed pandemic loans.

The bank has filed winding up petitions against 24 companies since last month, many of which show limited or no signs of trading activity.

These petitions, initially reported by the Financial Times, target companies that received loans through the government’s bounce back scheme. Anne Boden, which has faced criticism for its handling of the scheme, is also under investigation by the Financial Conduct Authority (FCA) for its compliance with UK money-laundering regulations.

Founded in 2014 by Anne Boden (pictured), Starling Bank has grown rapidly, boasting around 4.2 million customer accounts and reporting a £301.1 million pre-tax profit for the year ending March 2023. Its significant growth has been partly fuelled by the issuance of bounce back loans during the pandemic, aimed at supporting small businesses.

The bounce back loan scheme provided critical financial support to SMEs during the Covid-19 lockdowns, offering loans of up to £50,000 with a 100% government guarantee. Starling Bank, which also participated in two other government-backed lending programmes, has since faced scrutiny over the potential abuse of these schemes by fraudsters due to limited initial checks.

In 2022, former anti-fraud minister Lord Agnew accused Starling of failing to prevent fraud effectively under the bounce back scheme, a claim that Anne Boden vehemently denied. As of March 2023, Starling’s lending to SMEs stood at nearly £832 million, with about £742 million backed by government guarantees.

The bank has reported a 43.3% increase in impairment charges for potential bad loans, amounting to £12.2 million, attributed to growth in mortgage lending and higher default rates in unsecured SME lending. A Starling spokeswoman described winding up petitions as a standard procedure for recovering defaulted loans, emphasizing the bank’s proactive stance on loan recovery and fraud reporting.

Starling disclosed in its latest annual report that the FCA began investigating its anti-money laundering and financial crime controls in November. The bank is cooperating fully with the FCA, although the potential outcomes of the investigation remain uncertain and could be significant.

With John Mountain serving as interim chief operating officer following Anne Boden’s departure, Starling Bank is set to welcome Raman Bhatia, formerly of Ovo, as its new chief executive next week.

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