Interest Rate Swaps is a term being used to cover a wide range of sophisticated financial products.
The different types of business interest rate loan mis-selling are listed below, taken from the FSA website:
- 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 fails below floor limit.
Interest Rate Swaps were originally devised for only the most sophisticated investors. 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. Thus, due to these poor sales practices, the banks have forced these complex products onto Small & Medium Enterprises (SMEs) and individuals (the “unsophisticated client”) that has led to the mis-selling scandal. For further information on these interest rate swap loans please contact us for free initial advice.
Many SMEs are now facing huge payments under these agreements which they must continue to pay for the full term of the swap loan despite the substantial changes in the economic climate. Products sold as ‘protection’ are now crippling businesses who now seek to exit the arrangements and discover that significant exit or cancellation fees are payable, these can be up to 50% of the initial loan.
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.