There are still an untold number of individuals who appear to be unaware they may be eligible to make PPI compensation claims. But were you aware that the Financial Services Authority (FSA) recently confirmed there could be an equal number of small businesses eligible for compensation from major banks? This has been yet another huge blow for the banking industry, which is still reeling from regulations that could require repayment to the hundreds of thousands that were sold unnecessary insurance for a myriad of reasons.

Small Business Loan Protection Claims

Several of Britain’s largest banks have already agreed to compensate small businesses that were sold interest rate swap agreements (IRSAs). These financial institutions include Lloyds of London, HSBC, Royal Bank of Scotland and Barclays. All have agreed to repay small businesses that were sold structured collars. The FSA is still reviewing the other forms of IRSAs.

IRSAs & Small Business Loans

IRSAs are a series of derivative products which were packaged in business loan and credit agreements. These products were allegedly to help business consumers protect themselves against rises in interest rates. Similar to PPI which allegedly covered any loan or credit debt if the insured found themselves unable to do so, IRSAs assured small businesses were essentially guaranteed under a number of circumstances that they were safeguarded from variables in their interest rate.

There were four broad types of IRSAs:

  • Swaps: allowed small business customers to fix their own interest rate
  • Caps: placed a limit on an interest rate
  • Collars: protected the small business against interest changes as long as they remained within a specified range
  • Structured collars: an agreement that customers could limit interest rates within a certain range, but still left them open to rises in interest rates outside that range

Like the PPI claims included in customer agreements, small businesses found themselves subject to these ‘policies’ based on circumstance, not need.

Small Business Loans

Cash strapped small businesses that applied for loans or credit needed to keep their business afloat had these IRSAs bundled in their agreements. In other words, accept the contract accept the terms of the IRSA. In a number of cases, the business owners were not aware they were receiving the IRSA. This was a common practice with PPI as well.

The biggest problem with IRSAs was this protection came with a huge price tag. While it supposedly protected small business from rising interest rates, it didn’t protect them if the rates fell.

Rates were slashed significantly in 2008. Untold small businesses found themselves stuck with the agreed upon, higher interest rate. They were now paying more than they should have to. They were worse off instead of better. Yet, they were unable to swap out these loans or credit lines for ones with better rates. Not without being penalised with extravagant cancellation charges.

What Now?

The FCA investigation covers the distribution of IRSA products going back to 1 December 2001. Any businesses that were sold IRSAs since that date and beyond are eligible for redress from their providers. Just among the four major financial institutions that are prepared to make retribution, it is reported that well over 28,000 instances need to be accounted for. The majority of these products were sold between 2005 and 2008, just before the drop in the base rates.

If your small business had an IRSA product included in their loan or credit agreement during the abovementioned period, you should follow the necessary procedures to make a claim for redress. If you are not sure, contact your provider. They are legally bound to inform you if any agreement made with them includes IRSAs. In fact, your financial lender should or will have contacted you to explain if your agreement falls within the scope of the FSA’s review.

The financial institution has to be contacted before any investigation outside of the two parties can be addressed. In regard to structured collar, swap and collar IRSAs, if the bank has not contacted you, contact them. Either way, the bank needs to agree the issue is valid and independently propose reasonable and fair compensation on a case by case basis. The FSA asks you give the banks a reasonable period of time to review the matter.

If a cap was included, the agreement does not fall under the scope of the review unless you’ve put a formal complaint before your lender during the course of this review. It is the only way any claim you may have will be considered by the FSA, if it comes to that. After that contact, you are bound by the guidelines described in the previous paragraph.

If your bank is not included with the banks listed above, contact your lender anyway. The previously mentioned financial institutions are simply the prominent ones that have agreed to investigate and rectify their practices. All banks that have sold IRSAs are subject to the review and any consequences resulting from such.

Compensation on Small Business Loan Protection

Any redress will vary. They could include exit fees, partial or full refunds or the replacement of existing products with simpler alternatives. If you are unhappy with the outcome, you can then use proper channels within the Financial Services Ombudsman to file a formal complaint. They will investigate any claim under £150,000. Otherwise the business may need to file suit against the lender in court.

If you believe your small business has suffered, even went out of business, as a direct result of IRSAs, theoretically, it’s possible to seek compensation AND take legal action. This action would be solely the responsibility of the business owners. Contact a lawyer familiar with these disputes. They will advise on a course of action that fits your circumstances.

Conclusions

Before entering into any business loan or credit agreement, find out if you’re being sold any of these products. Banks have agreed to stop marketing structured collar products but the others are still viable. It’s been said these products do have benefits and can be considered. How they are represented and sold is what has been given consideration. If you’re unsure, contact the FSA and share your concerns.


Business Loan Protection Claims: News

Interest Rate Swaps: RBS exposed to new swap mis-selling

Investec reports that RBS is likely to be the next bank exposed to interest rate swap claims from mis-selling and should be putting extra provisions aside for likely calls for swap compesation.

After the FCA set up the interest rate swap rate redress scheme with the banking sector, only 10 claims have been compensated so date.

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What are Interest Rate Swaps

Essentially, two parties exchange interest rate cash flows, and the agreed upon contracts will specify the details of these exchange transactions. Hedging and speculating can be made more palatable with an additional product such as the IRS. The IRS will give more of a safeguard against a volatile market. Investing in interest rate behaviors often will soften a loss or add to a gain by either party. This type of product is similar to an insurance or assurance of a lesser kind of loss.

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Mis-Sold Financial Products – Midlands, UK

Maple Leaf Financial has been dealing with mis-sold financial products for consumers for the past 10yrs. Maple Leaf Financial is based in the Midlands making it ideal to serve clients in the Midlands and the UK. Most of our clients had no idea there was a problem with their policies or investments before they spoke with us. You have nothing to lose by calling us to find out about your own financial arrangements.

Maple Leaf Financial will review your Financial Products and we will be happy to discuss your individual concerns and requirements

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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.