NatWest will refund around 700 small firms a total of £600,000 after it wrongfully forced them to open current accounts to secure a loan, following a Competition and Markets Authority ruling.

The high street bank breached banking rules on ‘bundling’ by forcing business customers to open a business current account, which incurs fees, in order to get a loan, says the regulator.

The CMA says: “Hundreds of businesses have been charged monthly for a business account that they may not have wanted or needed.

“It also limited businesses’ choice as they were unable to hold an account with a separate provider, which may have better met their requirements.”

It adds the breach lasted for over three years with NatWest failing to alert the watchdog until January last year. It found that the bank had signed some customers to a business account, when they had specifically requested a fee-free account.

The CMA says it has “issued legal directions” to NatWest, which is in the process of refunding affected customers.

NatWest will now write to all of the affected small business customers with a business account to offer them the option of switching to a fee-free loan servicing account.

CMA senior director of remedies Adam Land says: “Forcing businesses to open costly current accounts to secure essential loans is unacceptable – and a direct breach of our rules, which have been in place for 20 years.

“NatWest should have known better. These rules are there for a reason – to make sure small businesses are treated fairly, and to make sure the market is competitive.”