HBOS facing inquiry into Farepak debacle

LOSSES & LAWSUITS

HBOS had granted an overdraft facility of £40 million for European Home Retail (EHR), the parent company of Farepak, but now stands accused of letting it operate even as it was staring into the abyss, and of trying to make a profit out of its demise.

Farepak was set up in 1969 to help families afford Christmas by setting aside money in a company savings account at any time of the year. Its collapse has left 150,000 people out of pocket, some customers losing up to £2,000 each.

While nothing has yet been proven against HBOS, the reputation of the bank is beginning to suffer. One Labour MP, Jim Devine, says he considered calling for a boycott of HBOS products and services in Scotland until the issue is resolved, but in the end decided to register his protest through other means.

Devine has accused HBOS of operating as the "21st century's unacceptable face of capitalism". The claims against the bank rest on the case set out to Parliament by Devine's fellow Labour MP Frank Field.

Field claims HBOS "allowed Farepak to continue trading while it clawed back something like £1 million a week of people's savings to offset the company's overdraft, gaining £30 million from the disposal of the firm's assets".

Some 90 backbench MPs have signed a Commons motion that urges HBOS to release the £30 million it recovered from the company.

HBOS has flatly denied the allegations and has contributed £2 million to a voluntary fund set up to help Farepak's customers. However, the 150,000 people affected are expected to get back only four pence for every pound they put in.