A row is brewing over how to prevent another RBS-style asset stripping scandal after MPs backed a new tribunal system to help small businesses take on banks.
The Treasury Select Committee is throwing its weight behind establishing a special system for settling disputes involving small and medium enterprises (SMEs) and large banks.
The plan goes against recommendations by former Institute of Directors chief Simon Walker, who last week said such a proposal would be too expensive.
He backed calls from the Financial Conduct Authority to expand the current services regulator to step in to resolve disputes.
Conservative MP Nicky Morgan, chair of the Treasury Committee, claimed the Financial Ombudsman Service (FOS) was not up to the task.
She said: “The FOS is under-prepared and under-resourced, so rushing through the proposals will yield little benefit.
On the need for a new system, Morgan said: “A regulatory black hole for commercial lending to SMEs has led to numerous cases of poor treatment of many small businesses, including the scandalous events at RBS’ Global Restructuring Group.
“The Treasury should bring commercial lending inside the regulatory perimeter, allowing the introduction of a regulatory regime that adequately protects SMEs."
The relationship between small businesses and banks has come under the microscope after it was alleged RBS employees were making SMEs go into liquidation to boost the firm's balance sheet.
In 2008, staff at the bank's Global Restructuring Group were even sent a memo titled "Just Hit Budget" listing various ways to generate income from businesses.
In a section headed “Rope” the memo said: “Sometimes you need to let customers hang themselves. You have then gained their trust and they know what’s coming when they fail to deliver.”
The Federation of Small Business welcomed the Treasury committee's proposal, with national chairman Mike Cherry saying: “Too many small firms find themselves between a rock and a hard place: too big for the FOS, too small for the courts."
The FOS can currently only help firms that have a turnover of less than £2million and employ fewer than 10 staff.
A FOS spokesperson said: "We help hundreds of thousands of consumers, including thousands of micro-enterprises, to resolve their problems with financial businesses every year and welcome the opportunity to help more SMEs get independent and impartial answers to their complaints.
"We will carefully consider the Treasury Select Committee’s report.”
The IoD declined to comment on either the Treasury Committee's findings or last week's report from its former director general.