It’s been said that as a successful business was never likely to be swayed by a ‘hedging’ loan that the practices were used to immorally target struggling businesses, with many firms claiming that they were told that they could only take out loans if they agreed to the terms.
Some businesses were alarmed to find that the ‘swaps’ and the loans that they took out were in fact two different products, meaning even once a loan was fully paid off, they were still being forced to pay into the swaps. The interest rate swaps essentially fixed interest rates for customers, protecting them from rising interest rates.
When interest rates went up, the banks would compensate their clients by offsetting the costs that were generated by rising rates. However, if interest rates fell, customers would need to pay the banks extra to offset the money that the banks would lose. By signing up for interest rate swaps, customers were essentially ‘betting’ that interest rates would continue to rise, which of course they didn’t. Instead, they fell to historic lows, leaving businesses massively out of pocket and facing financial ruin.
‘Sophisticated’ and ‘unsophisticated’
What was even worse for the affected businesses was that the fees demanded by the banks to end the contracts were unreasonably high, effectively tying customers into paying off sizeable debts. Some customers say that they were pressurised into agreeing to interest rate swaps and that they were not given enough time to look into the risks that they would be taking.
The Financial Services Authority have agreed that some customers were in a position to understand the risks that they were taking, and have therefore made a distinction between ‘sophisticated’ and ‘unsophisticated’ customers. They have based these distinctions on factors such as the size of the companies.
Some borrowers have claimed that they were forced to take out hedges that would last for significantly longer than the loans that they signed up for, leaving them liable to pay towards hedges for loans that no longer existed. Allegedly, the banks defended this by saying that the borrowers were likely to request further loans once initial repayments were made in full – even though the banks refused to promise their customers that subsequent loans would be available.
Customers that suspect that they have been mis sold interest rate swaps during the last six years are urged to contact their banks at the earliest opportunity to avoid missing out on compensation. Lamport Bassitt Solicitors have a specialist website for victims of interest rate swap mis selling, you can find out how to make a claim at www.swapmissellingclaims.co.uk