Britain’s largest lenders are stalling on compensation payments to thousands of businesses that were mis-sold risky hedging products with loans in the interest rate swap scandal, and as a result only a few businesses have received compensation a year after 12 banks were ordered to review past sales.
Vince Cable, Secretary of State for Business, Innovation and Skills, has criticised the lenders for stalling on the compensation payments and he is now seeking an urgent meeting with the Financial Conduct Authority chief, Martin Wheatley, to discuss the matter.
The Financial Services Authority, the predecessor to the FCA, reviewed 173 test cases and found that 90 percent of customers were victims of mis-selling by the four major banks, namely Barclays, RBS, HSBC and Lloyds. However, the number of firms that have received compensation or an offer of redress, is very low.
Cable is questioning FCA chief Martin Wheatley whether or not the FCA are putting pressure on banks to correct the problems the banks have caused. Regulators believe that up to 40,000 small businesses may have been mis-sold the interest rate swaps with loans from as early as 2001. Businesses who took out the loans were promised the interest rate swaps would protect their loans from high interest rate charges. However, businesses were not advised what would happen in the event that interest rates fell. Furthermore, businesses were not advised of the high breakage costs should they want to terminate the hedges/swaps.
As a result of complaints, banks have set aside in total more than £2 billion to pay compensation, with RBS putting aside £750 million and Barclays £850 million.
By commercial litigation solicitor, Leanne Millhouse