RBS aiming to wind down £1bn LOBO loans

26 Mar 19

The Royal Bank of Scotland is planning to close down the last £1bn of its LOBO loan portfolio by the end of this year, The Guardian has reported. 

Local authorities will be able to pay back loans earlier than their original contracts allowed, the publication reported. It is understood some of these repayments will come at a discount rate as an additional incentive. 

LOBO loans are controversial and have been subject to legal action because while the interest rate - that can be lower than that of the Public Works Loan Board – is initially fixed the lender can change this on pre-determined future days, such as every five years. If the local authority tries to pay the loan, which is long and can be between 40 to 70 years, it would normally pay a ‘break penalty’ to exit. 

Campaign group Research for Action has estimated for the 240 councils that have taken out LOBO loans, the public sector could be saved £16bn over the lifetime of the loans if the debt was refinanced through the PWLB. 

Joel Benjamin, a campaigner for with Research for Action, said: “It’s great to see RBS finally moving to unwind its LOBO loan portfolio, two years after Barclays decided to do the same.” 

Barclays scrapped the loans in 2016

An RBS spokesperson commented: “Whilst we can’t discuss individual cases, a number of our local authority customers hold legacy, long-dated, LOBO loans.  

“We work on a case-by-case basis with all our customers and as ever, arrangements are confidential. We value all our customers and are open to discussing restructuring or refinancing of such loans where beneficial for the customer.”

Shadow chancellor John McDonnell previously urged the government to launch an investigation into the loans. 

Troubled Northamptonshire County Council announced in February last year it was starting to pay back its LOBO loans.

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