The interest rate swap mis-selling controversy marks just the latest scandal to hit the banks, after a five-year period during which their reputation has been hit hard. As a result, more and more customers are choosing to seek out ethical banking to avoid become victims of further malpractices. Customers running small to medium businesses were encouraged to sign up for interest rate swaps after being told that the products would protect them from rising interest rates. When a customer needed to take out a bank loan, they were told that the rate swaps would essentially ‘fix’ interest rates for them, with banks providing them with money to offset the costs generated by any rises that might take place. However, when interest rates did in fact fall to historic lows, customers were forced to pay out excessive sums to the banks to compensate them for money that they would lose as a result.
Trapped by mis-sold interest rate hedging products
The record falls in interest rates led to crippling results for many banking customers, who would also find that six-figure payments were required to exit the contracts, meaning that they were essentially trapped. Perhaps even more controversially, it transpired that swaps and loans were two completely different products, which meant that even when a loan was paid off, customers remained obliged to continue paying for the swaps. The banks apparently justified this by saying they expected their customers to take out further loans once existing borrowing had been paid for. It’s also been predicted by economic experts that the funds that the banks have set aside for compensating victims of interest rate mis selling may come to be eclipsed by the sums that they will eventually need to pay out.
Government intervention sought
It’s said the banks used a range of unscrupulous tactics in order to ensure that customers agreed to interest rate swaps. These tactics included withholding information about more suitable products even when customers were perfectly eligible for them, not explaining that loans and swaps were two different products and not outlining details about the huge risks that their customers would be taking. The situation has become so adverse that the Federation of Small Businesses have wrote the Chancellor, asking for government intervention after finding little evidence that the compensation process had commenced. The Financial Services Authority – now replaced with the Financial Conduct Authority – estimated that around 90% of customers that had signed up for interest rate swaps may have been mis sold them, after they conducted a pilot study. Any customers looking for assistance and advice with their claims are encouraged to visit www.swapmissellingclaims.co.uk.