Miss-selling of interest rate swaps
There has been a rapid rise in the number of miss-selling of interest rate swaps. These are claims by small to medium sized businesses who have taken out loans and the bank has required the company to enter into what is an interest rate hedging instrument, also known as swaps, interest rate hedges, or derivatives , as a compulsory requirement for the loan being taken out. It typically occurred between 2005 and 2008.
The purpose of interest rate swap products was supposedly to protect against rising rates. Unfortunately, in some cases, customers had been landed with costs of hundreds and even millions of pounds, that they weren’t warned about.
The FSA has been completing an investigation into the types of those products, which range from simple fixed rate loans to more complex hedging products, including “structured” collars, which may introduce a degree of interest rate speculation.
The FSA are to report on Friday the 29 June, 2012, into its initial review of bank’s alleged miss-selling of interest rates swaps to small businesses.
Examples of matters giving rise complaints include:
- The bank insisting that the customer take out a swap when loan facilities were being granted or renewed;
- The customer’s bank manager advising that the bank’s interest rates were at an historic low and that they were going to rise in the long term;
- The customer’s manager expresses concern that, if rates rose, the customer would not be able to finance the loan;
- The business had no idea what was being sold to them;
- The bank made no mention of the downside of the product, or the magnitude of the broker costs;
- The bank made negligent misrepresentations as to the risks;
- The bank failed to comply with the FSA’s Conduct of Business Rules; and
- The customer is unable to refinance with another bank because of the continuing costs of the swap.
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