Interest Rate Swaps: Understanding the misselling scandal

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Updated: 15th January 2021

Mis Sold Interest Rate Swaps and the Commercial Lending Scandal

Within recent years it has been no secret that businesses in the UK have suffered due to a stagnant economy. Even after recovering from a double dip recession, many small to medium sized enterprises in the UK had trouble bouncing back. As a result, many directors were faced with going bust or infusing cash into their struggling company. Savvy high street bankers understood their needs and took this opportunity to prey on their distress. Unsophisticated directors of SMEs were mis sold interest rate swaps as a ‘condition’ of qualifying for a loan, but they didn’t have the legal or financial background to understand what they were getting into.

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Interest rate Rates: Do They Work?

The real question isn’t whether or not interest rate rates work but whether or not they have been sold fairly with the full understanding of the customer. This is what prompted investigations by the Financial Services Authority in the first place. Unfortunately, without clearly defined rules in regards to highly complex hedging products, many businesses lost claims in the very beginning. When they came forward stating that their interest rate calculation they depended on to protect them against a fluctuating market ended up costing them enormous amounts of money, they began filing claims against their lenders. At first, the FSA largely ruled against these claims in favour of the banks.

What to Do If FSA Offered No Redress?

If the FSA offered no redress for mis sold interest rate swaps, commercial lending would continue to victimise small businesses. Some companies continued appealing the FSA’s decision to the Financial Ombudsman Service. At first, the FOS upheld more than 90% of the cases that passed their desks on appeal. In an historic precedent setting moment in time, the FOS overturned two earlier decisions and these are now used as ‘case law’ upon which other decisions are being made.

Provisional Decision by the Financial Ombudsman Service Turns the Tables

In October of 2012 the FOS released a 19 page document that detailed their reasons for overturning one such case. In their findings, in regards to Business H and Bank S, they found that the answer that small businesses were looking for resided in the definition of what constitutes a small (unsophisticated) business. This information did, indeed, set a precedent for all interest rate swaps claims going forward. Since the FSA has mandated that banks review all such hedging products sold since the year 2001, this means that upwards of 100,000 SMEs can file interest rate swaps claims for redress and compensation.

SMEs throughout the UK are turning to Real Business Rescue for answers to their financial worries. If your business suffered as a consequence of miss sold interest rate swaps, we can help you understand how to file and claim back losses you incurred. Our network of financial advisers and claims specialists can discuss your particular circumstances to lead you in the right direction. Call us today on 0800 644 6080 for a free consultation. We have an extensive network of 100 offices offering confidential director support across the UK.

Keith Tully


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