The Financial Services Authority (FSA) has today revealed the findings of a pilot study into the sale of interest rate-hedging products (IRHPs). It found that 90 per cent of test cases it examined from Barclays, HSBC, Lloyds and the Royal Bank of Scotland did not comply with regulatory requirements.
The IRHPs were sold to up to 40,000 companies on the understanding that they would be protected from interest rate rises by having fixed rates on their loans.
But, when interest rates dropped to historic lows, some businesses were hit with excessive fees. Others complained of high-pressure sales tactics and huge penalties for cancelling the hedges or refinancing their loans to take advantage of lower rates. Many types of small businesses were affected including hotels, restaurants and pubs.
Business Secretary Vince Cable said: “I hope the banks will now properly compensate those small businesses that have unfairly lost money, time and energy during this regrettable episode. The immediate priority is to ensure small businesses are not driven out of business by banks pursuing liabilities for swaps that they mis-sold.”
The Federation of Small Businesses has added that the banks must now take ‘swift and decisive action’ to compensate all of the businesses caught up in this mis-selling scandal.
The FSA says the four big banks involved - Barclays, HSBC, Lloyds and the Royal Bank of Scotland - will now have to work out how much their customers lost.
It is not yet clear how many businesses are likely to receive compensation, but the FSA has also made it clear that that ‘consequential loss’ is to be part of any redress - a point which will be welcomed by the 8,000 hospitality business believed to be affected.
Daniel Fallows, a specialist in interest rate swaps at Seneca Banking Consultants, which is handling claims for hospitality businesses across the North of England, said: “We wholeheartedly support the FSA’s on this point. It’s simply not sufficient for banks to reimburse the interest paid.
“These products have in many cases destroyed good businesses that have been going for decades. The aim of the compensation process should be put the customers back in the position they’d have been in had these policies not damaged their businesses.”
In the pilot study, the FSA looked at a sample of 173 cases from Barclays, HSBC, Lloyds and Royal Bank of Scotland. It is still reviewing sales by Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks, Co-operative Bank, and Santander UK. It said it aimed to announce the scale of customer reviews at those banks by mid-February.
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