RBS Royal Bank of Scotland Group PLC

By Max Colchester 

LONDON-- Royal Bank of Scotland Group PLC said Tuesday it was setting aside 400 million pounds ($496.2 million) to compensate customers who were allegedly pushed into default by the bank's restructuring unit.

The bank acknowledged that in some areas it could have done better for small-to-medium enterprise customers in its Global Restructuring Unit. Specifically, it said the bank could have managed the transition to GRG better and should have better explained to customers any changes to the prices or complex fees it was charging.

"The bank accepts that it didn't always communicate as well or as clearly as it should have done. The bank also didn't always handle customer complaints well," it said.

The decision to compensate customers marks a change in tactics for RBS, which spent years denying it had mistreated customers.

Several small businesses and government adviser alleged that RBS's Global Restructuring Group unit regularly forced business customers to default on loans so that the bank could charge higher fees or seize their properties and sell them.

RBS has repeatedly denied this and commissioned law firm Clifford Chance to investigate the allegations. The report said that RBS didn't systematically defraud customers. The Financial Conduct Authority is conducting its own probe into the matter which it is expected to publish in the coming months.

After the financial crisis the number of customers being referred to RBS's GRG unit rose. A report commissioned by the bank on its business lending found that fewer than 10% of businesses referred to the GRG unit end up in bankruptcy. But its author, former Bank of England Deputy Governor Andrew Large, warned of potential conflict of interest at GRG because it selects the struggling businesses it works with from RBS's larger base of customers, and aims to generate a profit.

RBS closed both GRG and its West Register unit, which both advises distressed businesses on property matters and bids for their properties.

RBS is 73%-owned by the U.K. government, after it rescued the bank with GBP45.5 billion of taxpayers' money in one of Europe's biggest bank bailouts amid the financial crisis. The value of that stake has fallen sharply since the 2008 rescue and the vote to leave the European Union.

Write to Max Colchester at max.colchester@wsj.com

(END) Dow Jones Newswires

November 08, 2016 03:05 ET (08:05 GMT)

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