Have you entered into an Interest Rate Swap, or capped agreement (known as hedging)?
If so, are you clear what your obligations are and how much it is costing you?
Do you understand the implications of the FSA's recent announcements and how to maximise your position?
Do you know what it would cost you to re-finance?
Interest Rate Swap arrangements involve highly complicated financial products, that were often mis-sold by the banks to Small & Medium Enterprises ("SMEs"). Many SMEs are now facing huge payments under these agreements which they must continue to pay for
the full term of the Swaps despite the substantial changes in the economic climate. Products sold as ‘protection'
are now crippling businesses who now seek to exit the arrangements and discover that significant exit or cancellation fees are payable, these can be up to 50% of the initial loan. This may also become apparent when the underlying loans are paid off and the
businesses find that the loans and swaps are two separate agreements; meaning that businesses must continue to make payments under the swap agreement even if they have repaid their loan.
Alison Loveday, Managing Partner, recently appeared on BBC Breakfast along with Rizwan Malik, a small business owner, to discuss the Mis-Selling on Interest Rate Swaps and the FSA's report into the matter.
If you or your business are affected by the potential mis-selling of Interest Rate Swap arrangements or other similar products then we can help you improve your position; whether you are looking to recover payments made under the Swap or avoid the substantial
exit fees that would be payable in order to terminate the arrangement.
The advice and guidance of Berg is as necessary with structured collars (which the FSA has directed the banks to pay compensation for) as it is for all other forms of hedging agreements. Before writing to your bank it is important to be aware of the full
extent of the losses to which you may be entitled to compensation for, it is vital to not underestimate your claim when preparing a substantive complaint. We have the expertise in place to review your case and prepare a complaint to your bank, it is important
to remember that there is only one chance to initiate negotiation with your bank.
If you would like to find out more about the issues here, or feel that you may have a case, then please call Alison Loveday now on 0161 8339211 or email to
alisonl@berg.co.uk
Alison Loveday appeared on BBC Breakfast to discuss the Interest Rate Swap Miss-selling scandal. They discussed what the group of products known as Interest Rate Swaps are and whether it was mis-sold to its customers. Some business owners were not fully
informed of the risks of taking these products should interest rates fall, and now face a huge financial burden, given that this has in fact happened.
What are Interest Rate Swaps?
Interest Rate Swaps is a term being used to cover a wide range of sophisticated financial products. Essentially Interest Rate Swaps are hedging products often used in conjunction with terms such as "collars", "caps" and "floors". An interest rate swap, of
whichever variety, is used to hedge (bet) against rises in interest rates; they were sold as
protection products where the bank would compensate customers should interest continue to rise without any explanation to the risk and burden businesses would face should interest fall. Interest Rate Swaps were originally devised for only the most sophisticated
investors. However, often driven by commission and sales targets the banks began selling and subsequently forcing these complex products onto SMEs and individuals. It was the practices used in relation to what the FSA has deemed ‘unsophisticated clients' that
has led to the mis-selling scandal.
What is the so-called scandal?
An FSA report has now been published and can be found
here. It follows various whistleblowing claims made by ex-employees of well-known banks. Driven by Guto Bebb, a Tory MP, a cross-party investigation into bank practices has begun. There is now political support for a full investigation into claims that
banks, including Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland, systematically mis-sold complicated interest hedging products to thousands of small business customers.
The FSA concluded that swaps were mis-sold, and has ordered the banks to pay "appropriate" compensation for structured collars. No explanation has been given as to how or when this will work in practice. There is also no definition of what "appropriate compensation"
means or involves. This is where Berg has been able to assist many clients.
Why is it important?
It is said that SMEs will get this country out of the current recession yet it is the entrepreneurs who have risked their personal wealth in support of their businesses who have been affected by this scandal.
The scandal has similarities to the payment protection insurance (PPI) mis-selling scandal, where high street banks sold an insurance policy on a loan, credit card or mortgage payment. The policies were pressure sold to customers or even added on without
their knowledge. In some cases policies didn't actually cover the full term of the loan, as a result of the mis-selling scandal UK banks have been forced to set aside billions of pounds to pay compensation for mis-selling.
In the case of Interest Rate Swaps the potential stakes are much higher. The amount of money involved is greater and the impact on businesses can be catastrophic. Some businesses have "gone to the wall" because they cannot afford the increased payments;
others who have tried to refinance find that huge exit payments are due. It is important to note that not all swaps were mis-sold. If used correctly and wisely a swap can benefit a company greatly. If not used correctly it can push a business over the edge
into insolvency.
For some products, it was a "one way bet" for the banks, whereby they could cancel the policy if rates rose and the bank felt it wasn't earning as much money as it could. This type of swap was generally known as "callable swaps". If interest rates fell,
there was no equivalent right available to the borrower. Borrowers can often only cancel the Interest Rate Swap agreement if it agrees to pay substantial compensation – often up to 50% of the total loan value.
The FSA has ordered banks to pay compensation for structured collars: Why would I need a lawyer?
It is important that you seek
proper advice and guidance for any dispute with a bank. The FSA has simply ordered the banks to offer appropriate compensation, without defining what "appropriate" means or when this has to be done.
Berg has a dedicated Interest Rate Swap litigation team. We have experts who are able to assess the full range of losses suffered as a result of the swap. Not only should you be asking for the money that you paid to the bank to be refunded, but you should
also be asking for consequential loss such as compensation for the loss of amenity of that money.
It is also important to apply the correct level of interest to your claim, and we can help you in the complex process of calculating what this level should be. A letter of complaint may not be sufficient; Berg can advise and draft correspondence setting
out the strength of your claim and the options most appropriate to you. A threat of litigation may also need to be made, and we are experts in following the correct protocols for this process.
We must stress to all potential victims of mis-selling that they should seek legal advice and guidance to ensure that they maximise their chances of success, and this should be done as early as possible in the process. It can make the difference between
negotiating the right outcome for your business and failing to make any form of recovery.
If I have an Interest Rate Swap that is not a Structured Collar, can I make a claim for compensation?
How would it work?
Bank employees were incentivised to sell the swaps and this appears to have been done with little regard for what was in the best interest of the customer. The fact that the banks may have profited whilst their business customers were put under financial
pressure is not of itself automatically grounds for a claim. There are however various indications that show potentially strong cases, many clients have attempted to approach their banks without being aware of these we strongly advise against this and encourage
you to take advice and know your rights. Some responses received from banks may make it seem like you have no case; however Berg are equipped to respond to statements such as:-
1. You signed a document confirming that you understood that you were not receiving advice merely undertaking a transaction, as such there is no mis-selling.
2. You were directed to seek independent advice and as such lack of understanding is your fault. The bank would rely upon clauses such as "no advice" or "get independent advice" in the contract to stop a claim
3. As no advice was given, the bank did not have to follow all of the rules that cover advised sales.
It is important to emphasise that whilst you may wish to avoid litigation and the ‘legal route' knowledge of the various legal principles in place is vital to maximising your recovery. We have this knowledge and expertise and can help you along the way.
The legal background to this issue is complex, and in dealing with your case for instance, we will have to consider in detail and apply where appropriate the apply the Financial Services & Markets Act 2000, the rules on estoppel, the legal and regulatory framework
of the banks and, crucially, to find out and apply the authorisation of the banks employees.
Investment in legal advice at an early stage can make the difference between negotiating the right outcome for your business and failing to make any form of recovery. We strongly suggest you make this investment and make it now.
If you feel you may have been mis-sold a banking product, now is the time to act and we have the team in place to progress your matter today.
Will the bank retaliate if I instruct lawyers?
The simple answer is no. We have seen cases where banks threatened clients who instructed solicitors , however, the Financial Services Authority have stated that customers cannot be penalised for seeking redress. You may have seen in the press that one bank
was forced to apologise to the FSA after asking clients to mislead the FSA. The banks will not do this again.
Costs
Not all sales of interest rate swaps are automatically mis-selling cases. As such, we require an initial fee to review documentation and assess the merits of a claim. If your case merits further investigation we will then seek to obtain an opinion from a
barrister. After this there may then be various funding options available such as a No Win No Fee CFA agreement; however we could not enter into a CFA if we do not know what the chances of success are. Please do telephone us to discuss this further on 0161
833 9211.
Further Questions
Interest Rate Swaps are exceptionally complex and each case has individual circumstances. If we have not answered your question here, please call us on 0161 833 9211 and we will be more than happy to discuss your case.
How can Berg help?
Here at Berg we are already acting for a number of clients who believe that they have been mis-sold an Interest Rate Swap product. We fully appreciate the sensitivity of the issues involved and wherever possible will try to continue the banking relationship
and secure a negotiated settlement, if this is in the client's best interests and in line with its objectives. At the same time, however, we fully recognise that there are occasions when litigation has to be used as a "tool" to improve a business's negotiating
position. Businesses are often fearful of litigation because of the costs involved and for this reason we have in place strong relationships with litigation funders.
With the current press and political focus on banking the key message to take on board is to act now. This is a critical time for businesses to assess their positions. Interest rates are at their lowest point for decades and if businesses are able to take
advantage of these rates it could make a huge difference to their ability to not only survive the recession, but to grow their businesses.
If you would like to find out more about the issues discussed above, or feel that you may have a case, then please call Alison Loveday now on 0161 833 9211 or email to alisonl@berg.co.uk