Food manufacturers await bank compensation
Many businesses are thought to be suffering financially after taking out loan protection products – known as interest rate swaps – to guard against interest rates going up.
UK regulators ordered banks to review the sale of the policies in January. The banks are required to compensate customers who were misled or not given relevant information as part of the sales process.
Daniel Fallows, a of director Seneca Banking Consultants, which is handling claims for a number of food businesses, said progress to remedy the problem was too slow.
“There’s been a trickle of progress in terms of dealing with redress but what’s required is a tidal change,” said Fallows.
“Those food businesses firms that were persuaded – and often required – to take out interest rate swaps by their banks found these products to be damaging and extremely expensive to exit. There are also fundamental question marks about the review process set down by the regulators. The banks appear to have a system of self-adjudication, with no appeal process currently available to the businesses who do not receive a satisfactory response.”
‘Outright company failure’
Meanwhile, the mis-selling has had a dire effect on some businesses. “The effects of interest rate swap policies have included outright company failure,” said Fallows. “In some cases the existence of a swap has proved a deal-breaker where a principal wants to sell a business.
“In others, it’s forced people to sell up completely or to dispose of assets at below market rates to fund the vast fees associated with exiting these hedges.”
The Financial Conduct Authority – which assumed responsibility from the Financial Services Authority from the start of April – has given some banks, including Royal Bank of Scotland and Lloyds, the authority to begin contacting customers to initiate the compensation process.
But other lenders are still conducting internal reviews to discover the extent of any mis-selling.
Guto Bebb, the Conservative MP for Aberconwy, who leads the all-party parliamentary campaign to get redress for businesses, has complained of needless delay and intimidation.
“Businesses disputing the financial products [have been] told that their existing facilities, such as overdrafts or existing loans, would be withdrawn,” said Mr Bebb.
But a Lloyds Banking Group spokesman said: “We are committed to doing the right thing by our customers and we have now commenced our full review and we will provide redress as quickly as possible to those small business customers where detriment is identified.
'Fair and reasonable'
“The review is designed to provide a fair and reasonable outcome for all customers and will follow the review methodology as approved by the FCA and in conjunction with the independent reviewer, whose appointment was approved by the FCA.
A RBS spokeman said: "Since the FSA announced the findings of their review earlier this year we have been getting our process right and have already contacted customers. RBS has now been granted permission to begin the process of contacting customers and offering redress where this is due, and will prioritise financially-distressed customers."
Banks sold interest rate swap policies to SMEs between 2001 and 2008. The products were claimed to allow borrowers to fix their rates and control their costs, but when interest rates fell the ‘swap’ became costly.
“A gearing also kicked-in, making the exit fees astronomical,” said Seneca Banking Consultants. “In most cases, the lower rates fell, the higher the exit fees became – which the regulator said the banks often hid from customers.”
The compensation scheme covers so-called non-sophisticated borrowers, which are defined as businesses with a turnover of £6.5M or less.
Analysts predict the cost of compensation to banks could start at £2bn and possibly reach up to £20bn.
