Yet another product mis-sold by UK banks, this time to innocent small businesses. If you’ve had one, you will know how damaging to your business it probably was. Consequently, swaps have been deemed by the Financial Conduct Authority (FCA) to have been mis-sold in the vast majority of cases.
Please read more below about the problem or contact me for a review of your situation
A swap is basically an insurance policy designed to iron out the effects of interest rate movements and most of the major banks insisted business customers took out such policies as a pre-condition of granting a loan.
At its simplest, the swap contract was designed to pay out to the customer if interest rates rose, thus cancelling out the higher interest charges on the loan. But if interest rates should fall, the customer would be required to pay money to the bank, although in theory this would be offset by the lower interest charges on the loan. But crucially, not if interest rates were to fall a long way, as they did when the financial crisis hit in 2008.
The swaps were often sold on the basis that interest rates were on an upward trend. And as we now know, the major banks were rigging the interest rate markets (the so-called Libor scandal) to keep rates artificially high. Thus, there seemed little or no downside risk and swaps salesmen often never mentioned or glossed over the potential costs to a business if rates fell. The swap contracts were extremely lucrative to the banks, who were selling on the contracts for huge commissions.
When interest rates began to fall, many businesses were hit with demands from their banks that they struggled to pay. Some businesses were forced to close, others to cancel investment plans or lay off staff. And to make matters even worse, the terms for cancelling the swap contract were biased in favour of the banks. The costs were often prohibitive (up to 50% of the original loan) meaning many businesses had no choice but to keep up the payments to the bank.
Will the banks act fairly in this regard? Will they truly compensate customers sold swaps or try to limit the amount of redress they need to pay out? Many commentators think fair redress will be denied to customers, particularly in terms of “consequential damages”, with the banks employing complex methods of calculation to keep redress to a minimum.
If you have concerns about having been mis-sold an interest rate swap, or are worried that your bank will try to pull the wool over your eyes again when considering if you are due compensation, then please contact me now for a no obligation, informal chat.
