Interest rate swap mis selling: Is there a way out?

Andrew Brown is a Partner at London and Cardiff based law firm Capital Law.

Andrew is an expert in dispute avoidance advice and representing clients at mediations, adjudications and arbitrations. Andrew also specialises in urgent injunction work, particularly concerning the enforcement of employee restrictive covenants and securing the return of confidential information.

In recent years he has become an expert in the field of interest rate swap mis selling. 

With thousands of SMEs discovering that they have been victims of interest rate swap mis selling as part of their business loan, more and more of my work has been involved with trying to help sort out this legal and financial quagmire.

Interest rate swaps were marketed to protect against rising interest rates, and some companies are now arguing that they were not made aware of the implications of the rate going down, or having the risks properly explained by the lender. With the interest rates slashed by the Bank of England since 2008 (and which have remained low ever since), companies with an otherwise profitable business have found themselves crippled by massive fees and are now facing penalties of up to 23% of their loan to cancel long dated interest rate swaps

The situation is a ticking time-bomb for UK SMEs, many of whom now find they are saddled with a costly financial product which was never properly assessed by the bank to be suitable for their business.  Often interest rate swap products were imposed as a condition of further lending so the customer was often deprived of making a fair and informed  choice.

Businesses now feel incredibly trapped, not only by the onerous terms of the agreement, but also by a paradoxical concern that they will lose the continued support of their bank should they rattle the cage at all.

Clearly it is an extremely complex issue and before any negotiation or litigation can take place the viability of a claim must first be assessed. Once viability has been established businesses can work towards the goal of exiting the hedge and recovering their losses – whether through negotiation or litigation.

The FSA has set up a scheme to review and compensate customers of swap products by certain banks (Barclays, HSBC, Lloyds, RBS, Santander, Northern Bank, Co-operative Bank, Allied Irish Bank, Bank of Ireland and Clydesdale and Yorkshire Banks). However in order to be part of this scheme you must be classified as a non-sophisticated customer, that is, in the financial year during which the sale was concluded your company met at least two of the following criteria: a turnover of less than £6.5million / a balance sheet total of less than £3.26 million / fewer than 50 employees.

Furthermore cases can only be considered provided it is within 6 years of the date the swap was entered into.

By far the most favourable outcome is a negotiated settlement and a continuation of the banking relationship, but if litigation is required, there are legal avenues to be pursued.

But of course litigation is an expensive business and so alternative methods of funding legal action should be reviewed in order to ensure that any affected businesses have an affordable route out. There are a number of leading third party litigation funders who will fund the claim in return for a modest share of the winnings.

Contact for specialist legal advice on making an interest rate swap mis-selling claim. (For Scottish readers, contact St James Financial Reclaims:

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