Since 2010, BLB have been advising an increasing number of SMEs on the possible mis-selling by high street banks of complex arrangements involving interest rate swaps and hedging. These products were mainly sold by banks between 2005 and 2008. The sharp fall in interest rates since then has left many businesses in severe financial difficulty.
It is now clear that in many cases, banks failed to explain to their customers how the product worked, the fees that may become payable and in particular, the significant “break costs” that could apply.
Please contact us if you think you may have been mis-sold an interest rate protection product. We will carry out an initial review of your case before deciding on a number of options:
- Preparing a detailed report on your case with a view to opening negotiations with the bank concerned
- Preparing a formal complaint to the Financial Ombudsman Service
- Issuing Court proceedings against the bank.
Interest Rate Swap Mis-selling – Do you have a Claim?
At BLB, we have seen interest rate products sold to a range of SMEs including property investors and developers, farmers, care home operators and owners of pubs, restaurants and hotels.
What are interest rate swaps?
Interest rate protection products take a number of forms, including a rate swap and a ‘cap and collar’. Between 2005 and 2008, these complex derivative products were sold by high street banks as a way for borrowers to protect against interest rates increases, usually on a loan or overdraft facility – at a time when rising rates were a major concern for many businesses. They are a completely seperate product to the underlying loan which means the borrower’s liability under them will continue, even when the loan is repaid.
Why have they caused problems for some businesses?
Many borrowers who purchased a swap product did not appreciate that if interest rates fell – as they have done since 2008 to record low levels, they would not benefit from these low rates, but would continue paying substantially higher rates under the terms of their swap agreement. Some of these businesses have been told by their bank that they will have to pay many thousands of pounds to maintain the arrangement and similar sums by way of “break fees” to exit it. This has had significant financial implications for many businesses, with some of them being forced into administration.
Why may these products have been mis-sold?
Although a borrower cannot bring a claim against a bank merely because interest rates have fallen and they are tied into a particular product, there have been clear cases where banks have misled businesses, failed to fully explain how the product worked, in particular, what would happen if interest rates fell, or have recommended a product which was unsuitable or inappropriate. All the claims we have dealt with against banks stem from a lack of understanding by the borrower of the product they were being required to enter into, for example:-
- A disproportionate amount of emphasis being placed on the benefit to the borrower of a particular product and not on the potential costs and fees that may become payable.
- A failure by the bank to consider how suitable the product was for the business, taking into account its future plans, including the possibility of early repayment of the underlying loan.
- The bank insisting that a business enters into a interest rate swap arrangement as a condition of the loan, or maintaining a swap agreement as a condition of existing loan facilities being renewed or extended.
- The fact that the interest rate product was seperate from the underlying loan and would continue, often for many years, if the loan was repaid.
- The bank having an option to terminate the swap if interest rates rise, or in some cases we have seen, an option for the bank to extend a swap agreement where it is in the bank’s interest to do so – where interest rates are at record low levels.
- A failure by the bank to comply with the FSA Conduct of Business Sourcebook.
What remedies do you have if you have been mis-sold an interest rate swap?
At BLB, we will undertake a detailed review of your case before deciding on the most appropriate course of action. This may, in the first instance, be to make a formal complaint to the Financial Ombudsman. However, many businesses will not be eligible for this service – the Ombudsman can only deal with complaints from businesses with a turnover of less than 2 million euros and fewer than 10 employees. We may advise that the best course of action is to make a formal claim against your bank with a view to negotiating a satisfactory settlement.
In all cases, we will discuss with you at the outset the costs involved in bringing a claim against your bank. In certain cases, we may be able to proceed under a contingency fee agreement on a ‘no win no fee’ basis.