An interest rate swap arrangement (IRSA) is a complex derivative product that is sold together with a business loan to ensure that small businesses will be shielded from increases in interest rates. However, technically speaking, it is not an insurance policy.

 Interest Rate Swaps (IRSA) Categories

 

These products fall into the following main categories:


● swaps, which enable customers to set their interest rate,
● caps, which limit all interest rate increases,
● collars, which shield customers from changes in interest within an established range, and
● structured collars, with which customers are able to control such changes within a specified range. Note, however, that they can still be affected by interest rate increases.

What you should know

A vast number of small businesses were offered these products when applying for a loan to shield them from rising interest rates. Currently, the Financial Services Authority (FSA) has informed the four major banks of a plan to compensate businesses that purchased structured collars, and they will also analyse their sales of the other IRSAs to determine what should be done.

How the problem developed

The protection these products provided for borrowers also had a negative aspect, because businesses had to pay more when interest rates decreased. Consequently, when rates declined significantly in 2008, many businesses found themselves in a weakened financial position. Along with that, they had to deal with huge cancellation charges that many found to be unaffordable.

How small businesses reacted

Those that were caught in this dilemma maintain that they were not given appropriate advice regarding the risks entailed when they purchased these products, and the banks indicated that they would not be granted a loan unless they purchased an IRSA. The review covers products sold as far back as December 2001, and business that purchased such products since then may be eligible for compensation.

The Financial Services Authority (FSA) states that most of these products were purchased between 2005 and 2008, before the base rate fell sharply. They explain that the four major banks sold more than 28,000 of these products since 2001. If you purchased a structured collar, you bank plans to contact you and let you know if you are covered by the review process. If you are, you must provide the bank with the information needed to settle your claim. At that point, they will offer “fair and reasonable” compensation, which is also subject to an independent review.

What you can do

You will not be covered by the review if you purchased a cap, but you can file a complaint or swap claim with your bank while the review is being conducted. If you take that step, you will be treated like those customers who were sold a collar or a swap.

Redress and compensation from the banks will also vary, and they may include waiving the exit fee when you cancel a product, replacing one of these products with a less complicated alternative or some type of refund. Any business that is dissatisfied with the results of the review can proceed to file a complaint with the Financial Services Ombudsman, and the FSA has announced that any customer with a claim that exceeds £150,000 may have to take their case to court in order to settle it.

What will be done

According to the FSA, the next step in this review process is contacting other banks, along with the big four who have been selling these products. If they determine that mis-selling has also taken place there, the FSA plans to follow a similar procedure. At this point, any business that purchased a product from one of those banks will have to exercise patience until the FSA reaches a conclusion.

Theoretically, a customer can take other legal action besides seeking payment via the review process, but they will be responsible for all legal expenses. The FSA also stated that, along with offering compensation to those customers that purchased IRSAs, banks will no longer be selling structured collar products to their retail customers. The regulator emphasized that those products the banks will make available will be suitable for small businesses and provide genuine benefits to customers. In regard to IRSAs, the main problem may actually have been the way in which they were sold, rather than the products themselves.


IRSA & Interest Rate Swaps : News Updates

Interest Rate Swap appeal Lost

The two businessmen involved in the RBS Interest rate Swap appeal in court this week have lost their court appeal. The appeals court ruled that they were out of time.

The appeal court ruled that they had missed the six year limit on compensation claims for mis-selling under the breaches of regulatory guidelines for selling financial products had elapsed. This was the first serious test case on Interest Rate Swaps claims and the time period on claiming compensation.

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Interest Rate SWAP Claims

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 happy to review these relatively complex swap arrangements and to claim compensation for our clients where appropriate.

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Interest Rate Swaps court appeal begins

The first appeal hearing involving interest rate swaps begins today in the court of appeals. This appeal will have a significant impact on small businesses affected by interest rate swap products.

It is estimated that some 40,000 small businesses used an interest rate swap. These financial products were designed as a protection against interest rate rises on business loans. However this did not reflect in the interest on the loan when the interest rate decreased as a whole. This in effect created crippling interest rates for businesses who bought into these hedging products.

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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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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.