£2m secured for local businesses
KBL Solicitors has secured £2m for local businesses in last 10 weeks, and urge those that entered into Interest Rate Swap Agreements between 2001 and 2012 to come forward before window of opportunity for redress lapses.In a scheme known as Interest Rate Hedging Products (“IRHP”), also described as Interest Rate Swaps, major banks exploited SMEs by portraying such agreements as an effective and necessary security against rising interest rates.
In fact, such agreements are highly complex financial models which were dependent upon varying interest rates. The economic downturn proved to be the catalyst for interest rates to fall to an unprecedented level, leaving many SMEs paying excessive interest rates on their loans. In addition, many businesses attempting to leave these arrangements were confronted by extortionate exit fees known as “break costs” requested by the banks.Michael Slater, partner and head of commercial litigation at KBL Solicitors says “The banks collectively made billions as a result of the mis-selling of these products, whilst many SMEs, an essential part of the UK economy, were left facing insurmountable debts and in some cases, insolvent liquidation.
"It is only right that the banks are held accountable and those entitled to seek redress achieve just that. We have been dealing with all claims relating to the mis-selling of Interest Rate Swap Agreements for the past 2 years and know that the banks are now beginning to focus on “consequential losses” and we anticipate the banks may wish to close this window sooner rather than later."In August 2012, the Financial Conduct Authority (“FCA”) launched a pilot review of IRHPs which revealed over 90% of these products had not complied with agreed sale standards.
According to the latest data released by the FCA in June 2014, 16,000 redress determinations have been issued, of which 13,500 included cash redress. 8,000 of those determinations have been accepted, costing the banks an estimated £1.2 billion in compensation to date. Significant sums have been agreed to be paid out by the banks since June which are yet to be added to the FCA’s statistics.There are however, many business owners who are yet to request that their IRHP is reviewed, possibly owing to lack of awareness, particularly if their product has expired.
Dave Jones, former commercial banking director and now MD of PBM, providing strategic advice to SMEs, commented: “The prohibitive breakage costs associated with these products were often not communicated to business owners at the time of sale, leaving them unable to switch banks or take advantage of the historic interest lows that have been with us since March 2009. There are also c.80k Tailored Business Loans (TBLs) out in the commercial banking marketplace. These products included an embedded Swap and, as yet, have not been included in the review. A Treasury Select committee report scheduled for September is eagerly awaited as there is every possibility that the scope of the review could be widened to include these and other derivatives.”