There has been considerable media, regulatory and political attention given to the mis-selling of interest swap loans (Swap Loans – In the News). In June 2012, the FSA has recently agreed a settlement with Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland to pay “appropriate redress” to SMEs that were mis-sold interest rate swaps. Thus in many cases the only issue now is (or should be) the question of appropriate redress for the customer.
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).
What are interest swap loans?
Interest rate swap loans are complex products, which banks mis-sold to businesses alongside loans to protect them against rises in interest rates, in anticipation of interest rates going up. However, these interest rate swap loans have caused severe problems for businesses when interest rates subsequently went down, and The Financial Services Authority(FSA) believes that banks did not do an adequate job of warning customers about the risks of Interest Rate Swap loans in the event of interest rates dropping. It was 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.
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. Thus, it has now become apparent the bank was protected more than the customer and it was normal practice to emphasise the rewards and de-emphasise the risks. For more information, please do not hesitate to Contact Us.
The type of business interest rate loan mis-selling are listed below, taken from the FSA web site:
- swaps– which enables the customer to ‘fix’ their interest rate
- caps– places a cap on any interest rate rise
- collars– enables the customer to cap interest rate rises by limiting rate fluctuations to within a simple range
- structured collars– enables the customer to cap interest rate rises by limiting rate fluctuations to within a range (with a lower ceiling than a simple collar) but involves more complex arrangements if base rate falls below floor limit.
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.
If you are a small to medium size business that has been sold a business loan with a swap interest rate product pleasecontact usto see if you have a claim for mis-sold interest rate swap compensation. You could be owed £thousands!