Covid-Loan Allegations Rock FinTech Sector

Today we bring news of an astonishing outburst.

The general, industry-wide problem regarding Covid loans certainly appears to be real enough. But the specific allegations here are truly shocking.

Starling Bank is reeling from accusations from former Conservative minister Lord Agnew that the bank used the Government’s Covid loan scheme as a “God-sent opportunity” to swell its balance sheets without conducting adequate checks on the ability of loanees to repay the debt.

Introduced to cover the devastating effects of the Pandemic on small business, the bounce back loan scheme relied on UK banks to distribute £47 billion pounds of taxpayer money to distressed businesses, backed by a 100% Government guarantee that it would cover the losses if borrowers failed to repay.

Agnew, who quit as the anti-fraud minister in January over the government’s “woeful” efforts to control fraud, singled out Starling Bank as one of the worst offenders when it came to validating the turnover of businesses or submitting suspicious activity reports.

“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 said.

Agnew pointed that prior to the pandemic, Starling had only lent £23m. 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 per borrower.

“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, billing the bank’s actions as a “cost-free marketing exercise to build their loan book and so their company valuation”.

Starling’s Anne Boden expressed shock at the attack on her business and asked Agnew to withdraw his remarks.

“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,” she says, pointing out that the bank had introduced extra checks and had excluded all non-active companies from accessing the scheme.

“I agree with Lord Agnew that we must protect taxpayer’s money”, Boden says. 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”.

Historical Performance And IFISA Process Guide

  • Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). 

That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.

  • Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.

All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.

So here’s our guide to the process:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.

Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.

Risk: Security, Access, Yield

Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.



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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.