Interest Rate Swap’s – Alleged mis-selling: the latest scandal to hit the banks

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Posted in:Banking and Finance|April 24, 2012 | Join the mailing list

The banks are set to face claims for compensation running into many billions of pounds if concerns regarding Interest Rate Swap mis-selling are found to be correct.  This scandal comes "hot on the heels" of the PPI (Payment Protection
Insurance) saga which has resulted in the banks being forced to putting aside millions of pounds to compensate its customers.

The new scandal relates to the alleged mis-selling of highly complicated financial products.  These products were sold on the basis that they offered protection against rises in interest rate.  What appears not to have been fully explained, however, is that
the costs of these products would spiral if interest rates fell and also the fact that there would be a hefty penalty to pay if customers wished to exit or cancel the arrangement early. 

The scandal has picked up momentum and there is now a great deal of media interest and also pressure from MP’s for a full investigation to be carried out.  The FSA is already carrying out a review which they hope to conclude by the end of May.  It will then
decide whether a detailed investigation is required.  In the interim, MP’s are pressing for a full debate and for representatives of the banks to be called before the Treasury Select Committee. 

Alison Loveday of Berg comments: "interest swap arrangements appear to have been put in place without full consideration being given to the suitability of the product to business customers.  As a result, small businesses are finding that they are having to
pay out huge sums under the terms of the Interest Rate Swap/hedges documentation put in place.  If, as an alternative, they try to refinance then again they come against a significant financial penalty which often they simply cannot afford.  This means that
businesses are locked in to an arrangement which is crucifying the business at a time when they are already under significant financial and cash flow pressure.

We are acting for a number of clients where there appears to have be no commercial logic between the arrangement put in place and the needs of the business.  For example there is a mis-match between the term of the loan and the hedging arrangement (for example
a five year loan, with a fifteen year hedge arrangement).  In other cases, the value of the hedge arrangement is significantly more than the value of the loan.

We are very happy to talk to businesses who feel they have been mis-sold an Interest Rate Swap or similar product, as clearly the amounts involved and the potential impact on the business is significant".

To discuss how we can provide further advice in connection with these issues, please contact Alison Loveday, Partner and Head of our Employment team, by email to or alternatively you can call
Alison on 0161 833 9211.

The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice.  No responsibility for this article’s accuracy or correctness is assumed by Berg or any of its partners or
employees.  Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.

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