Interest rate hedging products were frequently marketed to customers who had or took out a loan with the bank. There are broadly four types of products that have been sold to customer:
- Swaps – enabling the customer to ‘fix’their interest rate;
- Caps – placing a limit on any interest rate rises
- Collars – enabling the customer to limit interest rate fluctuations to within a simple range; and
- Structured collars- enabling a customer to limit interest rate fluctuations to within a specified range, but involves arrangement where, if the reference interest rate falls below the bottom of the range, the interest rate payable by the customer may increase above the bottom of the range.
It is estimated that tens of thousands of these complex derivatrive products have been mis-sold by high street banks (including HSBC, Barclays, Lloyds TSB and RBS) to individuals and small and medium sized limited companies, mainly in the period 2005 to 2008.
Interest rate hedging products can protect customers against the risk of interest rate movement and can be appropriate when properly sold in the right circumstances. However, when sold to customers who are likely to lack expertise and understanding of the product (i.e. ‘non-sophisticated customers’), some interest rate hedging products may be inapproriate. (Non-sophisitcated customers can include caravan and leisure park owners, owners of the local chip shop or even the small hotel, as well as many other businesses).
Many businesses have been left struggling as a result of there interest rate hedging products. 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 loabs); and
- Rewards and incentives being a driver of these practices
The ‘protection’ against rising interest rates there products provided came with a price; businesses had to pay more if interest rates fell. And after rates were slashed in 2008, many businesses found themselves worse off instead of better.
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 hardworking, decent, dedicated individuals have faced financial ruin, stress and ill-health as a result of the consequences of the interest swap loans.
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 hestiate to Contact Us to see if you have a claim for compensation.
Need Legal Help?
We have an excellent track record for claiming compensation against major banks and lending institutions for mis-sold insurance contracts and products. There is no conflict of interest with us or any bank. As a specialist firm of solicitors we have no fear in taking on large banking institutions, we do not have an overdraft facility or even borrow any money from any bank to run our business. In fact we threatened to take legal action agaisnt our credit card provider because they tried to stop our taking card payments from clients who were taking action against banks for mis-sold PPI.
No Win, No Fee, No Worry Service
We are condident to offer you a legal service that we are prepared, given the right facts, to offer our clients a No Win, No Fee, No Worry Service to claim compensation for mis-sold business interest rate swaps. In short, if you lost your case against the bank and we obtain litigation insurance, you will not have to pay for any costs as the litigation insurance pays the banks legal costs. If you win, you are likely to rcover all or the vast majority of all legal costs from the bank. In most cases, win or lose, you often do not have to pay a penny!
If court action is not right for you, the Financial Service Authority has provided a free service to make a claim, but you must make a claim yourself. Alternatively, for a fee of 25% plus VAT, we would be able to represent you and make a claim through the scheme under a No Win, No Fee, No Worry Service. Thus, if you fail in your claim under the scheme, you pay us nothing; if you win, you pay us 25% of the financial benefit of the claim plus VAT.
Without fear or favour, conflcit or prejudice we are equipped to take action on your behalf.