Following the recent Panaroma programme highlighting the issue of mis-sold interest rate hedging products, many small business owners will be wondering if this is something that affects them.
An estimated 40,000 businesses across the country have been adversely affected by mis-sold interest rate swaps, with the Financial Services Authority (FSA) in 2012 finding that there had been widespread mis-selling of these complex financial products. Many of these products were sold as protection for the business but it now appears that a large proportion did not fully comply with FSA selling regulations and many companies are now being crippled with costs. Those seeking to exit the contract have found that significant cancellation fees are payable – which could be as much as 40 per cent of the initial loan.
The potential scale of this issue can also be noted in the provisions being made across the banking industry to cover compensation for this mis-selling. The industry as a whole has already set aside more than £3 billion and it is likely, much like with PPI, that this will only increase.
Many thousands of these small businesses have already spoken to the Financial Conduct Authority (FCA) to claim for redress for being mis-sold, and many others will be considering this on the back of the Panorama programme. However what the programme also clearly highlighted were the flaws in the claims process itself.
Chief amongst these is that the same banks who mis-sold interest rate hedging products are acting as both ‘judge and jury’ in determining whether a product had been mis-sold. Although there is an independent ‘skilled person’ overseeing the banks’ review of each case, they are appointed and paid for by the bank.
Another concern is that the banks’ review team will have access to all the relevant documents to conduct the review, but on many occasions when the business attempt to access the same documents (so they can prepare for the review) the banks are not releasing all the information on their file. This results in an ‘asymmetry of information’ between the bank and the business – which is neither fair nor transparent.
Potential claimants should also be aware of the ‘time-barring’ issue. Claims need to be made within six years of trade date of the hedging product if the business wants to seek redress through the courts. Those most at risk of being ‘time-barred’ are the small businesses that were mis-sold swaps in 2007-08.
However, the longer the claims review process takes, the greater the risk that some small businesses could be time-barred and lose out on the ability to claim the redress they deserve through the courts in the event they do not get a satisfactory outcome by using the FCA scheme.
My recommendation to small business owners therefore is that if you think you were mis-sold a swap or hedging product, or need more information about the issue, the time to act is now. Don’t run the risk of being time barred and miss the opportunity to gain the redress you could be due.
Be very conscious of the possible weaknesses in the review process, as well as any potential conflicts of interest which may make it more difficult for you to get the redress you deserve. Any small business owner thinking of claiming for the mis-selling of their hedging product should ‘do their homework’ and prepare as much as possible for the review process and avoid unnecessarily prejudicing the success of their claim. Pursuing a claim is not always as simple, straightforward or as fair as you would hope so make sure you don’t ‘go in blind’ when you get the letter from your bank inviting you for a review. There is no appeal process in the Scheme, so you only have ‘one shot’ to get a result. Make sure it is your best shot.