Back in 2008 dozens of businesses across the U.K. were sold a desert. The product didn’t look like a desert at the time. In fact what they though they bought was a very smart business decision and move. Instead, they were duped, but not by a con man. Instead, these hard-working businesses were sold a “bill of goods” by their own bank or commercial lender.

The businesses themselves weren’t necessarily blind or stupid, nor were they greedy. In fact, their own natural conservatism and risk-aversion was the downfall in many cases. The deal would work as follows: a business would be offered a loan by a bank which was marketed as a way to provide cash flow for growth and company expansion.

However, to get the offered loan, the business then had to also commit to a second financial product dubbed a “swap.” This is where things got fuzzy for the borrower involved; even the best financial experts have a tough time fully understand how a swap works. Instead, the average business owner simply trusted his banker to lead him correctly. In short, the swap was marketed to protect the borrower from a rising interest rate on the loan taken out first.

Interest Rate Swaps

The swap idea caught on quickly on because it was marketed as working similar to insurance except that it covered the loan already taken out. That sort of description fit the mindset of the business owner who wanted to protect his risk exposure with the original borrowing liability. Unfortunately, there’s always a catch. In the case of swaps, the financial protection was in place and worked as described when the loan interest rate went up, but the business was also on the hook for penalty payments buried in the terms when the same loan interest rate went down.

When interest rates did fall after the economic downturn in 2008, many businesses found themselves being burned repeatedly by the related swap penalties. In turn, the same penalty money was going to the bank that first originated the loan to begin with.

 

Years later the U.K. Financial Service Authority, as the country’s banking regulator, is now confirming its finding of consistent mis-selling by the banks of the above loans as well as the “insurance” swaps that went with them. Unfortunately, despite the regulatory finding, the banks involved have not been very keen on voluntarily restoring borrower funds charged via the swaps taken out.

In some cases, the companies committed to the swap penalties before even receiving the loan funds originally needed. When the subsequent crash came, the loan was reneged on but the swap agreement stayed in place, burning the business twice. While the banks required the swap agreements to get the business loans, they made sure to keep the agreements separate from each other. As a result, a negation of the loan contract didn’t affect the swap agreement from staying in place.

It is clear to market watchers and critics of financial institutions that the major banks involved are dragging their feet on any kind of return of payments to affected businesses and borrowers. With the recent Libor scandal, PPI settlements and penalties, and other regulatory fines, their management teams are probably not in the mood to pay out on yet another refund at the current moment, at least not until a given government agency or court forces them to do so. That’s not to say the major banks aren’t preparing for the eventual fines.

They currently have 1 billion British pounds set aside just for the swap penalties expected to eventually come down. But none of it is actually moving until required by a legal order. In the meantime, the various businesses damaged by the swap mess continue to suffer.


Interest Rate Swaps Resource

Small Business Disillusioned with mis-sold Interest Rate Swaps

Many businesses have become disillusioned due to the compensation schemes set aside for the interest rate swap mis-selling derivatives. The Financial Services Authority has agreed to look into the cases of the mis-sold financial products of the big four banks (Barclays, Royal Bank of Scotland, Lloyds, and HSBC). There are several other banking institutions that have become involved in this Swap claims dilemma, also.

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£10m Interest Rate mis-selling complaint against Lloyds by Alan Sugar

Lord Alan Sugar has sent a formal letter of complaint to Lloyds Bank for “mis-selling” of an Interest Rate hedging product. The apparent Break free sum amounts to £10m which was attached to the interest rate hedging product Lord Sugar used on his property.

The derivative was to protect against interest rate rises on a £97m Lloyds loan. Lord Sugar is undersatood to be considering legal action if the complaint is unsuccessful

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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.

If you believe you have incorrectly been classified as a ‘sophisticated’ customer and have, therefore, not been eligible for interest rate swap redress. Maple Leaf Financial will review your interest rate product 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.