By Iain Withers and Huw Jones
LONDON (Reuters) - Big British banks have been criticised by lawmakers for pressing ahead with plans for a new complaints service for small firms wronged by lenders, which they argue is too soft.
UK Finance, a City of London trade body, is setting up and funding the new service which be capable of resolving disputes and paying awards of up to 600,000 pounds.
This initiative follows a decade of campaigning by small businesses which have complained they were mistreated by their banks in the wake of the 2008 financial crisis.
The banks’ proposal has won the backing of the British government, according to correspondence between Britain's finance ministry and lawmakers published on Friday.
But two groups of British members of parliament have criticised the proposals for being too weak, arguing they would still exclude hundreds of firms from access to affordable justice.
Kevin Hollinrake, chair of the cross-party parliamentary group for fair business banking, said his group had been offered a seat on the new complaints service’s steering committee, but he planned to reject this unless his concerns were addressed.
"It’s massively important to give firms access to affordable justice and we are nowhere near that,” Hollinrake told Reuters.
“It’s nice to be invited, but unless they address these points it’s a case of thanks, but no thanks.”
Hollinrake also criticised the new dispute body’s proposed award limits and eligibility criteria, saying it should have independent governance, such as by the Chartered Institute of Arbitrators
Small complaints are currently handled by the Financial Ombudsman Service, but campaigners and a number of senior lawmakers favour setting up a new tribunal system for disputes outside the Ombudsman's limited remit, with stronger powers to sanction and compel evidence from lenders.
But the government has shown little appetite for backing the legislation needed to establish such a system and has instead supported the UK Finance plans.
Nicky Morgan, chair of the Treasury Select Committee, said: “There is cross-party support to provide enhanced protections and improved access to justice for SMEs, so it’s disappointing that the government will not pursue our recommendations."
The government rejected the Treasury Committee's call for setting up a tribunal to handle complex complaints from banking customers.
The government said the existing Ombudsman's remit was already being expanded from April to give an additional 210,000 SMEs with turnover of up to 6.5 million pounds access to its free service.
The government has backed the Financial Conduct Authority's plan to increase the Ombudsman's redress award limit to 350,000 pounds from 150,000 pounds.
"It is the government’s view that businesses with a turnover greater than 10 million pounds can reasonably be expected to be in a position to go to court," it said.
UK Finance's new disputes body would cater for businesses with a turnover of between 6.5 million and 10 million pounds.
(Reporting by Iain Withers and Huw Jones. Editing by Jane Merriman)