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An interest rate swap agreement (IRSA) is a complex financial product. Interest rate swaps have been aggressively sold by major banks to their small to medium business (SME) customers from as early as 2001. The most aggressive period that interest rate swap products were sold was between 2006 to 2008.
The selling of interest rate swap products was hugely profitable for the banks. Sold on a massive scale, it has become clear that a number of major banking institutions have been involved in mis-selling financial hedging products on a massive systematic scale. These interest rate swaps were sold as the ideal interest rate protection product guarding against the financial consequences of interest rate rises. There has been huge media interest in this area since April this year.
The FSA has recently reviewed these products and has worked alongside major banks to determine how the products were sold. As a result, the FSA have announced a compensation scheme for customers who have been mis-sold these products. The FSA have yet to formally announce the scheme terms, although it is expected that the compensation will be limited to £150,000.00 per customer. Any customer with losses over £150,000.00 will have to pursue the banks direct to recover their losses.
Banks offering loans to SME customers often included a condition that required businesses to enter into interest rate swaps. This was often for much greater amounts and over a longer term than was necessary given the amount and term of the loan.
Banks also offered the products as being a “protection” against interest rate rises, but failed to properly advise the customers what would happen if interest rates fell below the floor in the agreement.
Finally, banks also failed to properly consider the needs of the customer and whether the products being offered were suitable for the customers’ business.
Businesses who have fallen victim to this mis-selling are more acutely aware of the impact of paying far higher rates of interest than they anticipated because of the longest period of historic low bank base interest rates. Quite often, the banks would breach the FSA’s strict guidance about offering information to businesses on how much an interest rate swap product could cost the business and leave very little time to make an informed decision.
A significant number of the businesses who have been mis-sold interest rate swap products were unaware of the high cost associated with the products that were sold to them as a means of protection against increasing interest rates.
Businesses are also locked into these interest rate swap products for a period of time and there are large exit costs applied by the banks to escape the terms of the product. Businesses were in lots of cases not provided with information about exit fees in addition to the fact that they did not understand the products in the first place. Businesses were not advised of the risks in agreeing to them and this has led to a number of cases already being brought against the banks for mis-selling. There has been considerable media, regulatory and political attention given to this growing scandal.
Mis-sold interest rate swap products have cost British businesses billions of pounds. In fact, it is estimated that the total cost of claims could cost the banks £4.5bn in refunds and compensation. The actual number of mis-sold interest rate swaps is yet unknown, but according to the FSA, it is estimated that over 28,000 interest rate swap agreements were mis-sold to businesses across the UK by the four major banks.
Stephensons Commercial has a team of specialists who can deal with the mis-selling of interest rate swap products by the banks. We are not on bank panels that would influence our desire to get you the best result. We owe no allegiance to any of the banks involved in this issue, We have working relationships with the barristers, and other experts in this area of work. We are currently assisting companies in bringing claims major banks, some running into 7 figures.
The legal position in terms of the older products can be complicated. Certainly banks may argue that mis-selling claims are time-barred 6 years after the date they were sold to its customer. Ideally businesses should act quickly to avoid the banks being able to make use of this legal defence.
The bankers will also try to resist allegations of mis-selling, often without a proper consideration of the facts of the case. It is important to have solicitors acting for you who know this subject well and we can help. The banks will try to defend these cases vigorously. At all costs the banks will try to avoid any proof of mis-selling and treating small business badly, particularly where the banks made huge profits when selling these interest rate swap products.
The types of interest rate swap claims that we can help businesses with are interest rate swaps from the often called vanilla swaps, multi-callable swaps and libor and base rate swaps, interest rate floors, caps and collars.
Remedies against the banks may include damages, a refund of payments made and compensation. Stephensons’ commercial solicitors can help you claim back mis-sold interest rate swaps from the banks like we have done already for some of our business clients who have already been refunded thousands of pounds in compensation.
If you have an interest rate swap agreement, please contact us on 01616 966 229. Our team of experienced commercial solicitors will review the paperwork and advise if you have a case.
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