The FSA(The Financial Services Authority)has looked into the mis-selling of business interest rate swaps and considered that there may be a claim for compensation. The FSA has provided a review of the mis-selling of interest rate swap loans sold to small to medium size businesses (SMEs), including caravan and leisure parks, by the four largest banks in the UK.
The four largest banks are listed below:
After a review of the mis-selling of business loans or swap loans, the FSA found that when properly sold, in the right circumstances to the right customers, these products can protect customers against the risk of interest rate changes. However, when sold to ‘non-sophisticated’ customers likely to be smaller business which wouldn’t necessarily have specific expertise and understanding in this area (such as caravan and leisure park owners), some products may not have been appropriate for their needs.
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 caravan and leisure park 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, such as caravan and leisure park 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 caravan and leisure park owners causing difficult if not impossible trading costs, often resulting in closure of the business.
The banking industry failed to advise the small business owner of the risk and pitfalls in detail, failed also to advise the business owner of the onerous penalty clauses for cancelling the business swap loan resulting in unfair lock-ins. The bank, however, had a far less onerous “get out clause” if the interest rate fluctuation did not suit them.