Interest rate swap mis-selling: The latest scandal to hit the banks

The banks are set to face claims for compensation running to many billions of pounds as a result of a mis-selling scandal arising out of the financial crisis in 2007/08, the mis-selling of a highly complicated financial product called an Interest Rate Swap. Many of these products were sold to small and medium sized businesses who are now facing massive bills and exit fees.

In August 2011 Sky News broke the story. In November 2011 it reported on the first expected court judgment arising out of the mis-selling, a case which subsequently settled between trial and the handing down of Judgment.

On 10 March 2012 The Telegraph reported the scandal. The article focuses on a case that will shortly go to trial in the Bristol Mercantile Court.

The financial products are a highly complicated derivative, also known as Interest Rate Collars, Interest Rate Caps, Libor Swaps, Base Rate Swaps and Base Rate Caps. They were mis-sold by many high street banks following the financial crisis allowing banks’ treasury departments to book huge profits whilst small and medium sized business struggle to make ends meet due to facing large payments to the banks in order to buy themselves out of the products.

Sales of financial products by the banks are governed by the Conduct of Business Sourcebook (COBS) published by the Financial Services Authority (FSA). On many occasions these products were sold in breach of COBS. In other cases the products were sold negligently. The following are examples of circumstances which might give rise to a claim against the bank

• failure to comply with COBS
• failure to explain the key, and in particular the onerous terms of the products including but not limited to the break fees and the fact that a fall in interest rates could result in a significant increase in periodical payments]failure to ensure that the features of the product matched the underlying borrowing, either in terms of duration or amount.
• failure to ensure that the product met the needs of the customer
• the insistence by the banks that the customer take out one of the products in order to qualify for borrowing and renew existing facilities such as overdrafts.

If you or your business have been mis-sold an Interest Rate Swap or similar product then Debenhams Ottaway can help you recover payments made under the swap as well as save you substantial break fees that would otherwise be payable in order to terminate the product. In certain cases we can offer No Win No Fee or No Win Less Fee agreements with insurance so as to mitigate the cost of the claim on your business.