In what can only be seen as a blow to big banks and a benefit to small business owners, the Financial; Services Authority confirmed that many of the large banks in England will be required to repay small businesses compensation for mis-selling insurance products to them with their loans.
Known as Interest Rate Swap Arrangements (IRSA’s), these complicated insurance products were sold as a way for small business owners to avoid increasing interest rates on their loan products. In many cases, purchasing one of these products was required to obtain a loan.
An IRSA is not an insurance policy in the same manner as the PPI insurance policies that were sold to consumers against their credit lines. It is an implied insurance, however, to guarantee that interest rates will not increase on a loan product. In reality, the IRSA was a derivative product that was very complicated to understand.
Banks offered four different types of IRSA‘s :
- Swaps. This allowed the small business to fix their interest rate.
- Caps. This placed a ceiling on how high their interest rates could rise on the loan product.
- Collars. This offered consumers a way to protect themselves from changing interest rates within a specified range.
- Structured Collars. A very complicated scenario which allows consumers to limit the amount of changes made to their interest rates, but did not protect them from interest rates rising.
While this may sound like a smart investment for small businesses, the truth is that these “policies” came with a high price that the consumers were unaware of at the time of purchase. These policies did protect them from higher interest rates, but they penalized the consumer when interest rates dropped.
When interest rates bottomed out in 2008, many of these small businesses found themselves in more trouble financially than when interest rates were higher. Many of these businesses tried to pay off these debts early, only to discover that there were high penalties attached to this program for early cancellation. All-in-all, this product did more damage than good.
What was even worse, once the situation was investigated by Financial Services, is that many, if not all, of these business owners were told that they must buy this product if they wished to be approved for the loan.
This problem stems back to 2001, and the FSA has determined that over 28,000 of these products have been sold during this period of time. At this time, only the four largest banks, Bank of Scotland, HSBC, Lloyds and Barclays have agreed to refunds on these products. Other banks in England offering these products are currently under investigation, but not currently obligated to offer a refund.
What You Should Do IF You Have Purchased One Of These Products
At this time, most banks are actively contacting business owners that purchased a Swap, Collar or Structured Collar to see if you qualify for any type of reimbursement. At this time, Caps do not fall under this category, but you can request a review anyways if you feel you were sold a Cap under pressure.
If it is determined that you are subject to a refund, you may receive one or more of the following compensations:
- Full or partial refund of your costs associated with the product.
- Cancellation of the product without any penalties or additional charges.
- Switched to a similar product that is beneficial to the consumer.
Not every company will qualify for reimbursement, but it is very important that as a business owner you demand a review. If you have not been contacted by the bank, make an effort to contact them and ask for a review.
Each case will be independently reviewed and a determination will be based on any facts found. Any business that is not is not satisfied with the outcome of their review can address their concerns to the Ombudsman for the Financial Services Authority.
If you believe that your business closed as a result of one of these financial products, you should seek legal representation. While there have not been arrangements made for businesses in this position a solicitor may be able to help you gain additional compensation for the loss of your business.
Other Less-Known Compensations For Your Business
IRSA’s are not the only financial or insurance product being examined by the FSA for small business owners.
You may be entitled to other compensation if you have one or more of the following products:
- Business Insurance. There are several different business insurance products now being investigated and providing refunds for mis-selling to the public.
- Business Lease. Several leases have been found to have unnecessary attachments to the leases that unnecessarily cost the small business owner extra money. These leases include vehicles, machinery and other equipment, printers and office machines.
- Genuine tax allowances on commercial properties.
Additionally, there are other financial services and products that are currently under review by the FSA to determine if the sales of these products fall within the guidelines of fair business practices. If any new products are determined to fall under mis-selling, the FSA will provide a public notice.
As a business owner, it is in your best interest to take a few moments to research these issues to see if your company is due any compensation. Your company may be able to make claims in all of these sectors, allowing it to recoup many of its unnecessary past expenses.
Interest Rate Swap Claims News
Interest Rate Swaps: Barclays Bank, Fair and Reasonable Redress
Certain interest rate hedging products (IRHPs) have come under question by current banking customers and by several banking agencies within the U.K. These banking products are structured collar financial products that are frequently used to hedge against future interest rate expenses. These complex structured collars were sold to numerous loan customers during the period of time before the great international recession. This financial downturn across the international financial markets created unusual interest rate returns for many of the structured collars sold to Barclays Bank customers.
Preparing your Businesses for an Interest Rate Swap Claim
The interest rate swap mis-selling fiasco has garnered a lot of attention during the past year. Over 12 months after the first cases went up for review, the claimants are just now receiving the compensation they deserve. Although it may seem like businesses around the country are now experiencing financial windfalls, there is much work that needs to be done before anyone can expect to receive compensation from their interest rate swap mis-selling claims. It has become quite clear that the process is much more involved than a PP mark-II.
Interest Rate Swaps: Natwest, Fair & Reasonable Redress
Natwest Bank in London has begun a direct redress program for those small businesses affected by several interest rate swap products. These interest rate swap products or structured collars were sold to small businesses as a hedge against any risk associated with the interest rate markets. The small businesses or unsophisticated businesses were allowed to purchase these products. The 2008 financial crisis caused many of these hedging products to be of little value against interest rate changes. Small businesses were left with a financial bill that was significantly burdensome.
Maple Leaf Financial have a specialist team of solicitors dedicated to dealing with the mis-selling of interest rate swap protection products by the banks.
We are very happy to review these relatively complex swap arrangements and to claim compensation for our clients where appropriate. If you believe you have incorrectly been classified as a ‘sophisticated’ customer and have, therefore, not been eligible for redress.
Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim
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