At least the banks treat everybody equally. With the first trader having been sent to prison for 14 years for manipulating LIBOR and PPI claims for retail bank users now a fact of life, further evidence of the banks mistreatment of their customers has emerged. This time it involves the widespread mis-selling of financial instruments to their business customers.
The financial instruments in question are termed Interest-Rate Hedging Products (“IRHPs”), or more specifically, interest rate swap loans. Between 2007 and 2009, the mis-selling of IRHPs was rife, with some saying there are up to 100,000 potential cases affecting small and medium sized businesses.
Often attached to large loans; to purchase property, or invest in a business start-up, IHRPs were either hidden within the loan agreement paper work or else customers were advised they were a necessary inclusion by employees of the banks.
There are a growing number of cases negatively portraying both the way these products were sold, and the adverse effects they eventually had. HSBC, Barclays, Yorkshire and Clydesdale Banks have all been accused of mis-selling these products, but the Royal Bank of Scotland is at the centre of this issue. It’s much criticised Global Restructuring Group and its commercial property unit, West Register, are also involved in the scandal.
IRHPs were designed to protect those who took out loans from the effect of increases in interest rates upon the level of repayments. The crash in interest rates after the financial crisis of 2008, left businesses with loans with disproportionately large interest rates that they had not expected to be burdened with. The IRHPs accompanying their loans having been sold either without proper explanation of their effects, or with no indication of their inclusion at all.
On top of this, IRHP’s often included buy-out clauses that required exorbitant fees to be paid, in one instance up to 50% of the value of the loan, making it unviable to even consider buying your way out.
The mis-selling has seen banks, including RBS, put aside more than £3billion in provisions against compensation claims by its customers. This has been facilitated via the Financial Conduct Authority redress scheme.
Despite this, many feel they have not been adequately compensated and some have not been compensated at all. The scheme excludes any business who bought a swap worth more than £10 million or whose revenue was more than £6.5million per year on the basis that they were sophisticated enough to understand the product being purchased.
However, there is growing evidence that businesses will be able to recover losses caused by IRHP’s and also losses that were consequential to the mis-selling. A recent decision between Surmime, a holiday park operator and Barclays Bank has created an opening for businesses to sue the bank for mis-selling interest rate swaps. The High Court has ruled that where the scheme does not compensate victims satisfactorily, they can sue the bank directly for a breach of duty of care.
It is suggested that there are hundreds of such instances yet to be heard.
Why is RBS at the centre of the scandal? Because of IRHP’s, even healthy and profitable businesses found themselves in breach of their loan terms, trying to repay a debt at increasingly uncommercial rates. It was at this stage that the RBS’s Global Restructuring Group (GRG) often took over the business. The GRG has been accused of setting insurmountable goals, charging excessive fees of up to £250,000 just to be placed in the program and attempting to wrap up companies as quickly as possible.
In addition to the mis-selling, are accusations of businesses being deliberately wound-up. Once a business was deemed insolvent, the assets of that business were sold off by RBS at reduced values despite bona fide offers of higher values from outsiders or the original owners. RBS has also been accused of selling its customers’ property to itself, through its West Register property unit in a clear conflict of interest. The GRG has now ceased to exist, despite the RBS claiming its removal is in no relation to the accusations.
If you are a business owner with an experience similar to the above, of dealing with any of the banks, you should speak to a specialist litigation solicitor such as Christopher Burgon to discuss how best you can recover the damages and compensation you are entitled to.
– Thank you to Tom Beaumont for assistance in research and writing of the above article –