IRSAs — or interest rate swap agreements — are hugely complicated products which are sold alongside business loans to help protect small businesses against rises in interest rates. Interest rate swap agreements are hedging products often used in conjunction with terms such as “collars”, “caps” and “floors”. Thousands of businesses have been mis-sold this type of financing as a way to protect them against rises in interest rates. However, with interest rates hitting rock bottom due to the financial climate, companies are now finding themselves locked into uncompetitive rates and stuck with massive monthly repayments.
The FSA (The Financial Services Authority) found a range of poor sales practices including; poor disclosure of exit costs, failing to ascertain the customers’ understanding of risk and “over-hedging” where the swap is larger than the loan. It was also found that sale staff were incentivised to sell more complex products. The FSA also discovered that in some cases borrowers had been pressurised to sign up or told that the interest swaps were obligatory or made them more likely to succeed in their applications.
Additionally, once locked in to these costly agreements, many small firms 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. For further information on business swap loans please contact us for free initial advice.
These products when properly sold, in the right circumstances to the right customers, 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, some products may not have been appropriate for their needs.
Due to the banks mis-selling these business loan products, many hard working, decent, dedicated individuals have faced financial ruin, stress and ill-health as a direct result of IRSAs. Most of the interest rate swap business loans were sold between 2005 and 2008 but investigations can take place as far back as 2001.
The top four UK banks that have mis-sold interest rate swap loans to small businesses since 2001 are hereunder:-
If you are a small to medium, size business that has been mis-sold a business loan with a swap interest rate product please do not hesitate to CONTACT US to see if you have a claim for compensation. You could be owed £thousands!