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Have You Been Mis Sold Interest Rate Swaps?

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Have You Been Mis Sold Interest Rate Swaps? Interest Rate Swaps Explained

Reviewed: 13th March 2013

Fundamentals of Interest Rate Swaps: How Does It Work?

It is common knowledge that a fixed loan is preferable to variable rate (floating) loans because the percentage of interest paid monthly remains the same. For example, if a person borrows £100,000 at a rate of 4pc, the monthly interest payment would be £4,000 the first payment. Any money above that would go towards paying down the principle and if the payment was £5,000, hypothetically the next month the borrower would be paying 4pc of £99,000 plus whatever is agreed to go towards the principle.

Now then, here is the ‘tricky’ part that has gotten so many people and businesses in trouble. When taking out a loan, bankers know that customers prefer fixed rate loans. However, for those in financial distress, fixed rates are hard to qualify for. What do the bankers do at this point? They sell you a ‘package deal’ – you get the loan, but you also purchase interest rate swaps. If the rates go up, you are guaranteed the same rate but if they drop, you end up paying more. But what is so bad about this when it looks like interest rates will continue going up?

LIBOR Involvement in Interest Rate Swaps

Most consumers don’t understand LIBOR’s involvement in interest rate swaps, how they work and how these high street banks have manipulated interest rates on loans. Unlike other countries that have federal banks that set ‘prime rates’ upon which banks set their interest rates, LIBOR (London Interbank Offered Rate) is a group of banks that agrees on rates amongst themselves.

Throughout the interest rate swaps scandal, a number of smaller banks have accused LIBOR of ‘fixing’ rates to their advantage. Some of their information submitted to the FSA did prove to be helpful, but it has come to light that several bankers trumped up the charges to justify their own mis selling of IRSs.

This is where the Financial Services Authority has stepped into the picture to determine:

  1. If banks rigged rates to their advantage
  2. If banks knowingly manipulated customers into purchasing interest rate swaps
  3. Did customers understand the complexity of this derivative problem

The FSA is still investigating but major steps have been taken. They do believe that many banks (if not most) were mis selling interest rate swaps and have ordered banks to investigate any claims coming forward. Unfortunately, banks tend to gather together to protect their own interest as has been evidenced by mis sold mortgages and mis sold payment protection insurance scams.

Our team of financial advisors and insolvency practioners can help you determine if you have grounds to file a claim or for compensation due to financial loss. Let Real Business Rescue match you with the claims experts who can help you throughout the entire process from filing a claim to winning your money back. Call us today on 0800 644 6080 so that we can work with you to win back what is rightfully yours. With 55 offices stretching from Inverness down to Exeter, Real Business Rescue can offer unparalleled director advice across the UK.


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