The mis-selling of business interest rate loans (business swap loans) is another scandal by the banks. It is now accepted after investigations that these complex loans sold to small to medium size business may not be to the business advantage causing losses.
Simply put a business interest rate swap loan is a ‘gamble” by the bank and the business owner on whether the business loan interest rate will rise or fall. If the interest rate rises, the bank pays the difference, but if the interest rate lowers, the business owner pays the difference. Over the last few years the interest rate has fallen to historic lows, giving rise to substantial losses to the business owners and increase profit to the major banks who mis-sold these business swap loans. The businesses are varied from the “Chippy”, “coffee shops” and to small hotels.”
The top four UK banks that have mis-sold interest rate swap loans to small businesses since 2001 are hereunder:-
Most of the interest rate swap business loans were sold between 2005 and 2008 but investigations can take place as far back as 2001. Most small to medium size businesses owners were led to believe that these type of swap interest rate loans were just a label to simply fix their small business loan interest rates to provide some future certainty that the cost of the loan will not rise. In reality, the swap interest business loans were a sophisticated banking product that gambled on interest rates rising and falling.
The swap interest rate product may be sufficient for the “informed” or “knowledgeable” business owner willing to take a risk, but not for most retail small business owners. As a result of the banking crisis where interest rates have plummeted, these type of swap interest business loans have caused financial hardship to the small business retailer causing difficult if not impossible trading costs, often resulting in closure of the business.
Many businesses have been left struggling as a result of these Interest Rate Swap Agreements. The FSA(The Financial Services Authority) have found evidence of a number of poor sales practices across a number of products. These practices vary across banks and include:
- Poor disclosure of exit costs;
- Failure to ascertain the customers’ understanding of risk;
- Non advised sales straying into advice
- ‘Over-hedging’ (i.e. where the amounts and/or duration did not match the underlying loans); and
- Rewards and incentives being a driver of these practices
Many businesses have also found to their peril that once locked in to these costly agreements, many were unable to escape, as exit costs – which in some cases reached £1m – would be enough to bankrupt them. It has been found that one company went out of business after being charged interest amounting to more than twice the original loan amount – a £3m loan racked up an extra £6.1m to pay back.
Many hard working, decent, dedicated individuals have faced financial ruin, stress and ill-health as a result of the consequences of the mis-selling of interest swap loans.
Bank customers who consider they may have been mis-sold these financial products should seek legal advice without delay. Banks are likely to argue that mis-selling claims are time-barred 6 years after the date of the sale of the financial product which is the subject of the complaint (or possibly even earlier).
If you are a small to medium size business that has been mis-sold a business loan with swap interest rate product please do not hesitate toContact Usto see if you have a claim for compensation.