CLAIMS AGAINST MIS-SOLD SWAPS (BUSINESS LOANS)
Background to Swaps Mis-Selling
Many businesses across the UK have been affected by the mis-selling of Interest Rate Hedging Products or ‘Swaps’ as they are more commonly called.
From around 2001 to 2011, banks sold Swaps to protect businesses from the potential of rising interest rates. These Swaps were typically provided alongside a business loan but were not always sold properly.
The main banks that sold Swaps include:
- Royal Bank of Scotland/NatWest
- Lloyds TSB including Halifax and Bank of Scotland
Other banks that sold these Swaps and hedging products on a smaller scale include:
- Santander/Abbey National
- Allied Irish Bank
- Co-operative Bank
- Clydesdale/Yorkshire Bank
- Bank of Ireland
HOW DO I KNOW IF MY BUSINESS HAS BEEN EFFECTED?
A Swap or hedging product can be a complex product for many businesses to understand. Because these products are so complicated, banks are required to follow certain rules, regulations and standards when it sells these products. On many occasions the banks failed to meet these standards which resulted in the hedging product being mis-sold. In fact, according to the Financial Conduct Authority (FCA) it is estimated that over 90% of hedging products were mis-sold*, so if your business has one of these products, then there is every chance that it was mis-sold and you can claim compensation to put things right.
When the banks sold these hedging products they tended to target certain industry sectors, such as:
- Property Developers
- Public Houses
- Nursing & Care Homes
- Leisure Centres
- Golf Clubs
- Caravan Parks
- High St. Businesses
The business loan and hedging product are usually two separate products. If the bank that sold the Swap or hedging product didn’t follow certain rules and regulations then it is likely that the product was mis-sold. Key things to look for to indicate if the Swap was mis-sold include:
- A.)The risks of the Swap were not clearly explained:
The bank should have explained what would happen in the event that interest rates went down and how this would affect the cost of holding the hedging product
- B.)The ‘break’ or termination costs of the Swap were not properly explained:
The bank should have clearly explained when break costs could be paid and how much they could potentially be under various scenarios of interest rates.
- C.)The Swap resulted in ‘over-hedging’:
The Swap should match the size and length of the business loan. If the Swap was for a higher amount or a longer time than the loan, this caused over-hedging
- D).The bank did not provide a presentation to the business when it sold the Swap:
The bank should have always have provided some kind of presentation about the Swap to the business before it sold the product
- E). The bank insisted that the business take out a Swap in order to get the business loan:
On many occasions, the business did not even want a hedging product
In short, the Swap was clearly too complicated and therefore unsuitable for the business. It is unlikely that the owners of the business would have understood the hedging product in any event.
The FCA Review Process
Due to the widespread mis-selling of Swaps and hedging products, together with the serious failings of the banks, the FCA has set up a scheme to review whether these products were mis-sold to businesses.
If your business is deemed to be a “Non-sophisticated Customer” then you are entitled to have the sale of the hedging product reviewed by the bank that sold the product. Banks are currently writing to businesses to make them aware of this review process, however, many businesses will still need to actively ‘opt-in’ to the review process if they want the sale of their hedging product reviewed.
The review process means that the same bank that sold the business the hedging product is responsible for determining whether the product was mis-sold and if so, the amount of compensation due. Understandably many people may feel uncomfortable with this process and look to the help of an adviser to assist them. If the business did not understand the hedging product when it was first purchased it may be unlikely that it will fully understand the review process and any alternative hedging product that it is offered by the bank as part of the process.
We are currently seeing many examples of businesses that have not used an adviser and have been disappointed with the end result of the review process. This could be where the bank has determined that either the hedging product was not mis-sold or that it was mis-sold but the business is not entitled to any compensation in any event.
IS THERE ANYTHING I SHOULD BE AWARE OF?
Yes. There are potentially three other key things to be aware of.
(1) Fixed Rate Loans and Tailored Business Loans
It may be that the bank did not sell you a separate Swap or hedging product to the business loan, but rather provided you with a Fixed Rate or Tailored Business Loan (“TBLs”).
TBLs are a kind of hedging product where the Swap is “embedded” within the loan rather than running separate to the business loan. However, TBLs typically also came with high ‘break costs’ which should have been explained before they were sold. If you have a TBL or Fixed Rate Loan, currently you can’t use the FCA Review Scheme to claim compensation, but there are potentially other options available to you if you believe that you have been mis-sold one of the products.
(2) Statute of Limitation, 1980
If the Swap was sold more than 6 years ago, so in 2007 or before, then you may potentially be ‘time-barred’ from bringing a claim against the bank in court.
If your business is deemed to be a “Non-sophisticated Customer” then you can still have the sale of the hedging product reviewed in the FCA scheme, however, if the bank determines that the hedging product was not mis-sold then there is no appeal process in the scheme and the business will either need to litigate or, if they are deemed to me a ‘micro enterprise’, take the case to the Financial Ombudsman (FOS) if they wish to pursue compensation. However, if the business has been time-barred it will not be able to pursue a claim in court.
It is therefore very important that if you think that you were potentially mis-sold any type of hedging product then you should act now.
(3) Consequential Losses
If you can establish that the hedging product was mis-sold and the bank acknowledges that this has caused financial losses, then in addition to claiming compensation for the losses directly associated with hedging product, you can also claim for consequential losses, if this is relevant to your claim.
Examples of consequential loss, or loss of opportunity, include:
- Increased bank charges and higher loan margins as a result of the business struggling to make payments under the Swap
- A business forced to sell property or assets at a discount so that they can make payments under the Swap
- Plans to expand the business were put aside because it was no longer affordable due to the payments under the Swap
Remember that consequential losses are separate to “interest” and may require the specialist skills of Forensic Accountants to establish and pursue such losses.
Why Choose Us?
We work with a leading team of mis-sold Swaps claims specialists that include investment bankers (who sold these products) together with lawyers who have significant experience in banking litigation. We believe that a combination of this highly specialised skill set is what is required to ensure your claim stands every chance of succeeding and that you achieve the maximum amount of compensation if you have been mis-sold.
Our approach to a successful claim is to seek a commercial solution for the business rather than a legal one. We prefer to ‘work with’ the bank rather than take an aggressive approach. Many businesses still need to rely on the support of their bank, despite the review of the mis-selling of the hedging product, which should not adversely affect the banking relationship.
We are able to help businesses claim compensation in the following situations:
- You have received a letter from the bank inviting you into the FCA Review Process
- You have already ‘opted in’ to get the sale of your product reviewed by your bank
- You have already attended a Bank Fact Find meeting or Testimony meeting and feel unsure about what you said or how the meeting went
- You have already had the sale of your product reviewed and are disappointed with the decision or the offer of compensation
We can also provide the following additional services:
- Check any offers of redress or compensation that you have been given by the bank to ensure that it is a fair and reasonable amount
- Provide a Forensic Accountant report to establish any Consequential Losses
- Provide Expert Witness reports if you are looking to litigate against the bank
- Refer you to a partner law firm if you need to issue proceedings and litigate against the bank
- Attend a Bank Fact Find meeting on your behalf
- Assess the merits of your claim and provide a report