efg loan default

[djprescott]

The guarantee *is* brought into use, but it is the bank's guarantee, not the borrowers. The bank is only allowed to go for that guarantee if they can show that they've ruthlessly pursued the borrower for the money first, and come back empty-handed.

Thank Tom, I understand that now. So the premiums are really just a bit of extra bunce for the treasury!!

 

[Anglia Finance]

The guarantee *is* brought into use, but it is the bank's guarantee, not the borrowers. The bank is only allowed to go for that guarantee if they can show that they've ruthlessly pursued the borrower for the money first, and come back empty-handed.

The scheme is there to give the banks assurances that in the event that the client defaults and they are unable to get the money back from them they still will receive some of the money back. The purpose is there to allow the banks to lend when the only reason they wouldn't normally is the lack of available security.

If you are unable to meet the loan repayments and have no assets then the banks will claim under this guarantee, however if you are unable to pay they will most certainly come to you in the first instance seeking full repayment.

 

[Anglia Finance]

Thank Tom, I understand that now. So the premiums are really just a bit of extra bunce for the treasury!!

Judging by the rate of defaults and inability to claim on a lot of guarantees (as there are no personal assets) I suspect they have lost a lot more than they have made!

 

[mcjohn]

It is very important to take advice of financial and legal adviser in this context. You should also talk with your banker about some recommendations in this situation. Otherwise situations may go to worst and you will face further critical financial as well as legal issues in bother personal and professional life. However, it seems as you will get federal help in this situation. If you have full documents of loan then verify it again to find out if there are any mistakes.

 

[Guitarxx]

Hi Tom

I took out a 128K EFG through RBS/natwest and they took out a 2nd charge on my house for 30K. I was led to believe that as others on this forum I would only be liable for 25% and it says so in black and white in the documentation, surely we'd have a good case for misselling as per PCI.

Is a 2nd charge on my house different to having a chare on my main residence, it sounds like they shouldnt have been able to do that.

Seems like EFG is a scam, any help would be appreciated.

Tony

It is a requirement of the EFG from the government's point of view that the bank must exhaust attempts to get you to pay up for it *before* any part of the government's 75% comes into play. If the bank can't show that they've pursued you ruthlessly they don't get their government guarantee. Also they're limited to reclaiming 9% of their entire EFG portfolio which gives them another motive for reclaiming as much as possible from individual borrowers.

In fact you render yourself ineligible for an EFG loan in the first place if you aren't prepared to put all of your personal assets at stake. This ought to been explained to you carefully when you took the loan out.

But it is also a condition of EFG loans that lenders aren't allowed to take a charge on main residence of guarantors. (though in practice I'm not sure how serious that limitation is, since guarantors are expected to stake all of their possessions to get the loan. Not "taking a charge" isn't the same thing as saying that your home definitely isn't at stake).

 

[Tom McClelland]

I'm no expert, but if you have documentation from the bank saying that your exposure is only 25% then I doubt that they have a case if they're trying to get more than that from you.

You probably need professional advice on this, though.

 

[Alan R Price]

I believe there may be some misunderstanding over the wording in the EFG documentation and its meaning generally. The paperwork I have seen clearly states that the government is giving a guarantee although the guarantee is limited to 75%. The nature of the guarantee is not that the govt. is agreeing to joint and several liability as principal borrower but that in the event the principal borrower defaults, it will pay up to 75% of the liability after all other avenues have been exhausted. The borrower is on the hook for the whole amount and if it cannot pay, then any director guarantor or surety is next in the firing line. It is only if these do not clear the debt that the govt.'s (i.e. taxpayer's) guarantee is invoked.

It does appear to be the case however that, in many instances, this has been poorly explained to directors before they signed up and they didn't realise what they were getting into. The banks would argue that it was up to the customers to read and make sure they understood the documentation before signing it however the courts have sometimes, in the past, come down on the side of the "little man" against the banks when it comes to disputes relating to complicated paperwork.

Anybody suffering a claim under a personal guarantee or EFG loan should take specialist legal advice.

 

[Bricklayer]

Alan,

the Nat West made me convert part of my existing overdraft to an EFG loan which left me with enough overdraft to continue with. It was sold to both myself and my accountant in the manner that i would be liable for 25% the company would be liable for the full 100% if the companies assets fell short both myself and the DTI would be liable me for 25% the DTI for 75%. I has happy with that and the extra cost of the "insurance premium" however as we had more than enough assets to cover a main stream loan the bank told me to withhold a 2nd property that i own to enable me to qualify for the loan. After getting the loan thats when the problems began, our overdraft was reduced to nearly zero unless i signed for a charge on my main house. Having been told that i would only be liable for the 25% this has turned out not to be the case so i'm now gunning for the Nat West. I'm up to date with the payments, we at this moment in time have work in hand, so as long as the payments are met there's not a lot they can do to me what does bother me is the £28k extra that i'm paying in "insurance premiums" with no likelyhood in them paying out. If everyones under the same impression regarding the premiums and liability maybe it could be the next PPI for the banks?

 

[Alan R Price]

Alan,

the Nat West made me convert part of my existing overdraft to an EFG loan which left me with enough overdraft to continue with. It was sold to both myself and my accountant in the manner that i would be liable for 25% the company would be liable for the full 100% if the companies assets fell short both myself and the DTI would be liable me for 25% the DTI for 75%. I has happy with that and the extra cost of the "insurance premium" however as we had more than enough assets to cover a main stream loan the bank told me to withhold a 2nd property that i own to enable me to qualify for the loan. After getting the loan thats when the problems began, our overdraft was reduced to nearly zero unless i signed for a charge on my main house. Having been told that i would only be liable for the 25% this has turned out not to be the case so i'm now gunning for the Nat West. I'm up to date with the payments, we at this moment in time have work in hand, so as long as the payments are met there's not a lot they can do to me what does bother me is the £28k extra that i'm paying in "insurance premiums" with no likelyhood in them paying out. If everyones under the same impression regarding the premiums and liability maybe it could be the next PPI for the banks?

I think you could be right. You are not the first person to post on here about this although I haven't come across any instances personally. I actually believe that bank managers did not understand how the scheme worked and mis-sold it. As with any commercial contract, if you have been misled, you may be able to rescind the contract and avoid liability and/or recover payments made under it. It's worth taking specialist advice. There is a solicitor called Claire Kaudeur who posts here under the name Clarkmans. I believe she has experience in acting for directors against banks.

 

[tuberose]

They will most likely want to do a deal but the size of that deal depends on the size of their expectations.

 

[Alan_Math]

Came on here looking for some reassurance, but now I'm totally depressed.

Here is my story:

I took a £20k EFG loan out in 2009, we'd paid off roughly half of the amount when a builder went bust on us forcing the company into liquidation through not being able to pay it's debts when the fell due.

So I got my letter in from the bank calling in the debt, I phoned a fella' at the bank and we discussed the EFG, we agreed that the bank would call in the £9500 from the Government and I'd pay the remainder up over the next 12 months, I fired off the paperwork to the bank and heard nothing since.

Until...... I got home from work yesterday and had a letter from a recovery agency (Regal), so I phoned the bank and they said they had no record of my previous conversations with the bank and had not seen my proposals and that I am NOW dues to pay the full amount.

HELP!! :-/

Hello all, I have an update for anyone who is interested.

After much correspondence and arguing, the bank has agreed to me paying them £100 a month for 12 months.

During the correspondence, I told them of my wife's mental ill-health and the angst caused by the man I spoke to who agreed to my initial proposal, I even got £100 compensation!

Good luck to all,

Best regards,

Alan

 

[Alan R Price]

Alan

I think that's a great result, and shows what can be done if you stand up to the banks. They aren't always right, and they know it. Unfortunately, not enough other people do!

 

[Alan_Math]

That is correct Mr Price, pick up on any errors that the bank make and lay it on thick.

TBH, I'm a bit miffed at having to pay them back £1000 as I feel I could've got them lower but guess you should be thankful for small mercies.

Anyway, like I say, best of luck to anyone going through similar.

 

[avantime]

Alan - that's great!

Do you have it in writing that they will leave things be after the £100 pcm for the 12 months? If so then fair play and well done!

My complaint is currently with the FOS - has been for several months now!

 

[Alan_Math]

Alan - that's great!

Do you have it in writing that they will leave things be after the £100 pcm for the 12 months? If so then fair play and well done!

My complaint is currently with the FOS - has been for several months now!

Thanks mate.

They are very cute this way.

I have 2 letters from them stating that "they agree to my repayment proposal", the proposal is £100 pcm for 12 months, I've read it 1,000 times to see if they are trying to get out on some sort of technicality but I've satisfied myself now that it can only mean one thing.

 

[avantime]

An update.

I have had a letter this morning from the FOS upholding my complaint (in part) and requesting that the bank release me and my ex-business partner from the personal guarantee.

My argument was based on several factors including the time the bank took with the loan, a lack of knowledge on the part of the bank staff and not knowing if they were going to persue us legally or otherwise.

Best letter I've received recently!!

 

[Betsy & Parker]

I would appreciate some feedback from the forum.

For a variety of reasons, my company has defaulted on an EFG loan for £400k. Over the years, we paid back half the loan creating an outstanding loan value of £200k.

How does the bank (RBS) attribute the 75% Govt guarantee ? Is this against the initial loan value (ie making me liable for £100k) or on the residual loan value (ie making me liable for £50k). It appears completely open to interpretation although at the time of taking the loan out, it was implied that the latter view would be taken.

This is a critical element of the guarantee which does not seem to be clearly stated.

Any thoughts would be really appreciated.

 

[Billmccallum]

I would appreciate some feedback from the forum.

For a variety of reasons, my company has defaulted on an EFG loan for £400k. Over the years, we paid back half the loan creating an outstanding loan value of £200k.

How does the bank (RBS) attribute the 75% Govt guarantee ? Is this against the initial loan value (ie making me liable for £100k) or on the residual loan value (ie making me liable for £50k). It appears completely open to interpretation although at the time of taking the loan out, it was implied that the latter view would be taken.

This is a critical element of the guarantee which does not seem to be clearly stated.

Any thoughts would be really appreciated.

Your bank will chase all the guarantors for 100% of the balance, the EFG will only kick in when others sources have been exhausted.

 

[Tom McClelland]

I would appreciate some feedback from the forum.

For a variety of reasons, my company has defaulted on an EFG loan for £400k. Over the years, we paid back half the loan creating an outstanding loan value of £200k.

How does the bank (RBS) attribute the 75% Govt guarantee ? Is this against the initial loan value (ie making me liable for £100k) or on the residual loan value (ie making me liable for £50k). It appears completely open to interpretation although at the time of taking the loan out, it was implied that the latter view would be taken.

This is a critical element of the guarantee which does not seem to be clearly stated.

Any thoughts would be really appreciated.

As Bill has implied, my understanding would be that it doesn't really make any difference to you which way it is treated. Under the terms of EFG the bank must first ruthlessly chase your company (or any personal guarantors) for 100% of the loan, and it is only if you are incapable of repaying it that the bank can then go back to the government for the government guarantee. Your liability is for the full amount if you can pay it, not 25% of it. The 75% EFG guarantee is for the bank if you have no money and no assets, not for your protection.

 

[Alan R Price]

Betsy & Parker

Bill and Tom are correct. The Govt is only liable to pay 75% of the shortfall once all other avenues have been exhausted.

Is your problem temporary or is it a symptom of something more deep-seated? Have you sought advice from your accountant or an insolvency practitioner? You may believe you have considered all the possible options but it's worth getting a second opinion before doing anything else. If there is a viable business (ignoring current debts) there may be ways to restructure its finances or obtain outside investment.

Don't panic!

 

[doi_swilkinson]

[FONT=&quot][/FONT]​

[FONT=&quot]
[/FONT]​

[FONT=&quot]EFG loans not permitted to be secured or pursued against primary residential home[/FONT][FONT=&quot][/FONT]​

[FONT=&quot] [/FONT]
[FONT=&quot]A few months ago we discovered that the banks had to collect out on a defaulted EFG loan within 18 months, and if it had not been collected by that time then the bank had to make a claim under the government guarantee scheme.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]It has now also been found that it is expressly prohibited for an EFG loan to be secured against the main residential home, or indeed pursued with respect to one.[/FONT]
[FONT=&quot]This is an extremely important factor to be aware of when banks are pursuing on personal guarantees.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]The relevant Q&A extract from the governments BIS website is as follows:-[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Q. The bank will not offer me an EFG loan as I have a property that I am unwilling to use as security. I thought banks were prohibited from taking a charge over my property as security for an EFG loan.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]A. Under EFG, lenders are expressly prohibited from taking a charge over a principal private residence as security against an EFG loan. However, EFG is only considered when the lender has decided that the business is viable, but there is inadequate security to meet their commercial lending criteria. If you have sufficient security, such as through equity in a property to meet the lenders criteria, then by its very nature EFG is not required and not appropriate.[/FONT][FONT=&quot][/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]For the avoidance of doubt, the existence of EFG should not be seen by borrowers or their advisers as a mechanism for putting personal assets beyond consideration (principal private residence excluded for the purposes of EFG). If the lender refuses to offer EFG on the basis that the borrower had access to security which they were not prepared to put forward, then the lenders decision would be fully supported by BIS.[/FONT][FONT=&quot][/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Q. I am willing for the bank to take a charge over my principal private residence if it means I can secure an EFG loan. Is this possible?[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]A. Where a charge over a principal private residence is deemed appropriate by the lender and the borrower is willing to provide this charge, the lender can spilt the borrowing into two separate loans. This would be done through a secured loan utilising the equity in the property and a separate unsecured loan making use of EFG.[/FONT][FONT=&quot][/FONT]
[FONT=&quot] [/FONT][FONT=&quot][/FONT]
[FONT=&quot]To be absolutely clear, if the borrower defaulted on their EFG loan, their principal private residence is explicitly excluded from any recovery action.[/FONT]

 

[avantime]

That is how I understood it - primary residence is not at risk in relation to EFG scheme.

Betsy & Parker - did the bank imply, when you took out the loan, that the DTi would pick up 75% of the tab if your company failed?

The important thing to remember is that you have time on your side - in my experience at any rate.

Take as much advice as possible.

Good luck

 

[Bricklayer]

We were told that the DTI would be responsible for the 75% and have it in writing. When we went to the FOS they couldn't help us as our turnover and employee numbers were over 2 million Euro's or more than 10 employee's. The bank are ripping business's off by mis stating the conditions of the loans and just covering their own backs to make sure they get money in any event.
They refinanced my overdraft into an EFG to make sure they were covered and missold it us on the basis that my personal liability would only be for 25% of what was outstanding and that would be covered by the 2% per qtr premium.
Keep us informed on how you are getting on.

 

[Alan R Price]

Bricklayer

I haven't changed my view that you should take specialist legal advice specifically about your own circumstances. The longer you leave it, the more difficult you will find it to refute the Bank's claim.

 

[avantime]

An update.

I have had a letter this morning from the FOS upholding my complaint (in part) and requesting that the bank release me and my ex-business partner from the personal guarantee.

My argument was based on several factors including the time the bank took with the loan, a lack of knowledge on the part of the bank staff and not knowing if they were going to persue us legally or otherwise.

Best letter I've received recently!!

Well the bank are contesting the adjudication by the FOS. They are getting the DBIS involved now.....

Expecting more delays. Hopefully contact with both the bank and the DBIS should get some straight answers about the scheme and the expectations of all parties...

 

[Betsy & Parker]

Avantime

You mention the FOS have upheld your complaint against the bank.

They might be a useful ally in my case. Could you let me know the department or individual you have contacted at FOS ?

I agree with others that the EFG guarantee - for which we paid handsomely - has been miss-sold. Nowhere in the actual document I signed details how the guarantee would be applied.

 

[old boy]

Quite incredible how much miss selling has gone on over the past 20 years

There is a whole new raft of claimms for commercial loans and mortgages now too

 

[StMartinsterr]

Just to note that a bank can only claim from HM Gov't on default once it has exhausted all other options, and even then only 9.75%. That is becasue the pledge to underwrite 75% of bad debt from EFG loans is based on an assumed default rate of 13% (actual default rate in last full year of SFLGS I believe). So they will pursue directors etc hard to collect what they can where they can, leaving the 9.75% for "needy" cases.

Also most PG's are for the full amount, not the mythical 25% (because as you can see from the above, the DTI doesn't cover 75% of all loans at all, but a mere fraction of that).

StMartinsterr

 

[brewerjon]

Hi, my wife and i took out an efg 3 years ago and the company has gone bust. as per many of the previous posts we were under the impression we were 'liable' for 100% of the loan but only guaranteed 25%, with the other 75% being guaranteed by the government. i now understand the workings of the EFG scheme so i am not disputing that the advice was wrong, we were plain and simply mis sold this product. now lloyds are coming after us for the full amount. any advice on what to do or who to speak to?

 

[Confusedefg]

We had an EFG loan and our business failed in 2011. Before the business closed we brought up with our business manager that we believed that we had been mis sold the loan. To cut a very long story short after almost 2 years of getting no responses back for lloyds we had to complain to the fos as we too believe we were mis sold. The fos then took over 6 months to look into our complaint. Because of the delay on both parts the fos cannot get the approval from the liquidator to look into our original complaint as the company has been dissolved. This is total madness.
The fos are now saying that lloyds have deferred to the government and have been paid the 75% of our debt. Does this mean that they can no longer come after us for the 25%?
What I want to know is it true about the 18 month rule!?
The fos are saying from a pg point of view we weren't mis sold however if they have defaulted to bank surely this money should be null and void. Also our guarantee was for 75k but the loan was for 101k (paperwork error) and therefore in my mind they have had the 75k...
Thoughts please??

 

[Alan R Price]

Jon

You are not going to get the detailed advice you need on a forum like this. There is definitely a chance that, if the product was mis-sold to you, you can reduce your liability substantially - even the bank managers selling the EFG loans didn't really understand them in a lot of cases - however each case will turn on its own specifics and you should therefore take specialist legal advice (i.e. not from Joe Schmo the High Street lawyer who does house sales, divorces and wills).

 

[brewerjon]

Alan, many thanks for your interest in my post. Do you or anyone know any person or organisation that have helped with this sort of case?

Best

Jpn

 

[Alan R Price]

PM me details of the area you live in and I will see if I can recommend somebody local. If not, I can still let you have details of a specialist who will be able to help you. Geography isn't everything nowadays.

 

[avantime]

We had an EFG loan and our business failed in 2011. Before the business closed we brought up with our business manager that we believed that we had been mis sold the loan. To cut a very long story short after almost 2 years of getting no responses back for lloyds we had to complain to the fos as we too believe we were mis sold. The fos then took over 6 months to look into our complaint. Because of the delay on both parts the fos cannot get the approval from the liquidator to look into our original complaint as the company has been dissolved. This is total madness.
The fos are now saying that lloyds have deferred to the government and have been paid the 75% of our debt. Does this mean that they can no longer come after us for the 25%?
What I want to know is it true about the 18 month rule!?
The fos are saying from a pg point of view we weren't mis sold however if they have defaulted to bank surely this money should be null and void. Also our guarantee was for 75k but the loan was for 101k (paperwork error) and therefore in my mind they have had the 75k...
Thoughts please??

Are the FOS saying that because Lloyds have to exhaust all avenues to recover the money from you before going to the govt for the 75% the fact that they have had the money means they have done it already and you should only be liable for the 25%?!

Very similar to my case....

 

[Confusedefg]

Yes they are saying that we are still liable even though the government have paid them the 75%?

 

[lolabelle1]

Hi all, new to this forum but very interested in whats being said. I too am being pursued by lloyds now after sending my complaint to the FOS, and my claim being rejected. I was also given the same advice that I was ony responsible for 25% and also took out the insurance, that they have now advised was mis-sold to me. My limited company was liquidated in 2010, and i have been fighting ever since. I was told on a number of occasions, by bank manager that if anything happened to the company I would only be responsible for the magical 25%!! Loan was given to boost cashflow, but they drew down the money, then reduced my overdraft by 10k, so basically paid themselves back with the loan!! Am at the end of my tether now, but still willing to fight!! Any feedback or advice would be greatly recieved. Wish I had looked on here when my complaint was being looked at Thanks - sorry that a lot of you are going through this too.

 

[Betsy & Parker]

Further to the earlier posts regarding EFG contractual terms, does anyone actually have a copy of an EFG agreement ?

Although promoted as a separate line of funding for small businesses, I cannot find (nor has my bank submitted) any documentation relating to the terms of an EFG agreement. The magical 75% guarantee by Govt does not appear on my loan agreement - only that the initial loan value is split 25:75 between myself and the bank. So any re-payment of the loan value does not reduce my exposure !

What is interesting is that my company overdraft and the EFG have separate guarantees. The bank is attempting to reclaim both yet I have had advice that - as they are essentially both the same funding (ie there is no separate EFG agreement) - my liability should be capped to just one guarantee.

Any feedback relating to EFG documentation or advice appreciated.

 

[Bricklayer]

What i dont understand is where does the 2% premium the BIS take each quarter go? If they are guaranteeing a loan but they still chase you for the full amount what's the point of it? Its the same as PPI in my mind.

Big play on the 75% but in reality they still come to you for the full amount. Has anyone had their pg's called in?

 

[Alan R Price]

Let's get this straight. The EFG scheme was never introduced to encourage businesses to borrow or to protect them from the consequences of default on their bank debt. There were plenty who wanted to borrow following the credit crunch but the banks, having had their backsides well and truly kicked for making bad loans, were rather reluctant to lend to anybody who actually needed the money because they were frightened they might not get it back and would get their backsides kicked again.

So, the government said to the banks: "To encourage you to lend money to SMEs again and kick-start the recovery [yeah, right], for certain qualifying loans to SMEs, we will guarantee to cover 75% of any loss you make if the borrower defaults." It was never intended to benefit the borrower, only the banks. The problem is, nobody bothered to tell this to many of the people involved in granting the loans or it seems, the borrowers themselves, as is evidenced by the tales here and on other forums, and the stories I have heard from both bankers and their customers.

The way it works is this:

• bank lends money on the strength of an unsecured personal guarantee;
• customer goes bust and insolvency practitioner is appointed;
• bank calls up guarantee - guarantor is liable for the full amount of the debt;
• IP realises what he can, pays the fees of the insolvency proceedings and distributes whatever he can to the bank;
• bank is left with a shortfall;
• bank pursues guarantor for the shortfall and gets what it can out of him;
• bank gets paid in full or is left with a residual shortfall;
• bank claims under EFG scheme and gets 75% of the residual shortfall back from HM Gov.

Oddly enough, although I'm a simple man, I worked this out at the time the scheme was launched but it seems a lot of people didn't, so there was clearly something wrong with the PR material and instructions sent down from on high to relationship managers, who then explained it wrongly to their customers.

As regards the quarterly premiums, presumably they go to BIS to help fund the payments it actually makes to the banks once they have crystallised their shortfalls.

 

[Bricklayer]

Alan,

the EFG loan replaced the SLGS which did covered the 75% with the borrower being liable for 25% however as with Labour spin they knew that business's wouldn't swallow the 100% liability plus pay the bank 2% which the bank paid themselves under the SLGS so the foot soldiers from the banks selling the products had to butter up business's by saying in my case...the business would be liable for the full 100% in the event of a default any shortfall would be made up by the DTI's 75% guarantee plus me being personally liable for 25% to pay for this there's a 2% premium paid each qtr....simple enough even for a construction worker...however it was a lie....what they should have said was...the business is liable for 100% and as you have a full pg you are liable for the full 100% however if there's a shortfall then the DTI will guarantee the banks 75%.

At the time my EFG was taken out it was to pay off some of my overdraft...I bet many banks did this rather than actually lend cash...once the overdraft was part paid they took it off me.....doesn't sound like helping business's through the downturn to me!

As in the case of the swaps the banks only told people what they wanted to hear rather than what should have been explained in full...the only difference if the interest rates went higher the swaps would have worked but in the case of the EFG you're sold down the river either way. There should be and must be some sort of public outing of this scandal.

How would we start the ball rolling forum?