Interest Rate Swap Claims – Ask Me Anything

@Mark

Great Minds lol

@Daniel - I was just reading an article about how a charity had been fleeced with one of these products. When I got to the bottom of the article I noticed you had been quoted. Here's a link just in case you've not seen it or if other readers would find it interesting >>> http://www.civilsociety.co.uk/finance/news/content/15573/christian_charity_struggling_to_reclaim_compensation_for_missold_financial_product

Dear Daniel

If one is not able to get satisfactory redress under the FCA scheme, clearly the next stage is to issue proceedings in court.

Many of us were made aware of the changes to funding that were taking place under the Jackson Reforms and signed up to CFAs and ATE insurance prior to 31st March.

I am sure followers of this forum would be keen to know how the Jackson Reforms that took effect from 1st April have changed their litigation funding options going forward.

What options are you able to offer to claimants who missed the opportunity to sign up prior to 1st April?

Simon

@Simon

Where a claimant is unsuccessful under the Review process they may still be able to claim through the Banks internal complaints procedure of the Financial Ombudsman (FOS) prior to litigation. Litigation will always remain an option where the claim is not stature barred. The Jackson Reforms will have an impact on the costs that are recoverable under Conditional Fee Agreements (CFAs) and After The Event (ATE) insurance entered into post 1 April 2013. We are engaged by clients on a contingency basis, in effect ‘no win – no fee’ but in line with the Jackson Reforms our payment will arise from any recoveries from the Bank and will be payable by the client.

We are not a law firm and so will not manage litigation on behalf of our client but would refer them to a specialist law firm who will run any litigation at preferential rates. They will also be able to advise on the options available for CFAs, ATE and also damage based agreements (DBA’s) which hold that an agreed percentage of the damages will be payable by the claimant to the law firm. These are capped agreements and so provide security as the extent of any costs to be paid by the client.

Does that help you? any other questions?

Given that RBS was extreemly pushy onto its salesmen in the Natwest branches and given that Natwest run over 25% of all small business accounts in the country and are thus prime targets what are the tactics you have seen RBS employ.

Clearly they are going to do the Deny, delay destroy type tactics that have been exhibited in occasional public cases eg Liverpool football club seems to of been settled and in Scotland RBS bankers have been proved in court to of lied and deceived to the courts plus their lawyers.

Have you review the banking cases where RBS destroyed PLCs with administration together with K PMG? there is a pipeline of cases eg 2007 Torex, Liverpool Football club and many others?

What tactics will you use to counter that?

Prepared is forearmed and RBS have been determined to avoid court settlements by running the issues out of time or settling before.

Only then do they cough up and put the gagging orders on.

Im just checking that you have done your homework as the RBS squid via Natwest have vast tentacles extending far into Labours Scottish powerbase

How might taking an IRSA have affected you and your business?

The ways in which an IRSA might have negatively impacted upon your business and you personally are numerous and varied. Typically, an IRSA would result in being paid to the bank in excess of what it would have been were in not for the IRSA, as a consequence of the base rate falling. At the lower end, this resulted in less substantial profits for the business than would have been the case, were it not for the IRSA.

In March 2009, the recession resulted in interest rates being reduced to a historic low of 0.5%, where it is expected that they will remain for the foreseeable future. Collars and Base Rate Swaps meant that customers began to pay artificially high interest rates on business loans. Of course, any assets of a business, in terms of savings in a business account, for example, would only attract a nominal rate of interest.

The financial crisis had not been predicted by many and, when it hit, it resulted unforeseen problems for many businesses. Cash flow problems for customers meant that suppliers would often experience delays in receiving payment, or would not be paid at all, resulting in their own cash flow problems. In many cases, businesses could not service the artificially high interest rates due on their business loans. Failure to keep up with the loan repayments often resulted other costs such as:

1. Administrative charges – These were commonly applied to accounts which were in arrears;
2. Accountant’s fees – Some businesses were required by their bank to undergo an expensive review of their finances by the bank’s accountants, the cost of which would be charged to the business.
3. Legal fees – Where banks took legal action, its legal costs were applied to the customer’s account.
The reality for many small businesses was that the situation was unsustainable and they were forced under. Other businesses struggled on, but continued to suffer losses and/or substantial loss of profits as a result of the unfair agreement they had entered into with the bank, coupled with the economic climate.

The consequences for the individuals running small and medium sized businesses were often disastrous. Many ran up considerable personal debts in an attempt to fund their business. In some cases, people would stop paying for other items in an attempt to juggle their finances. For example, frequently people would not maintain the payments due under a finance agreement for a car or other vehicle, resulting in the vehicle being repossessed. For a sole trader, this would almost certainly be the final nail in the coffin. In extreme cases, people would find themselves unable to maintain their mortgage payments, resulting in their home being repossessed. Repossessed properties are commonly sold at auction, often for less than the market value. Coupled with the collapse in housing prices, this regularly resulted in mortgagors owing a shortfall on the mortgage.

any questions please ask away

@Daniel
Please forgive my ignorance which is even more embarrassing as I started in Banking, but in my defense it was a long time before these types of products were available.

I have seen lots of horror stories in the press about how much people who didn't understand or were talked into these products have lost, but the press never fully explain how they work so up to this point I have only really guessed.

Would you be able to give an idea of how one of these loans (in particular swaps as caps and collars were available in the early 90s) would have worked and why businesses have lost out so badly. This would be much appreciated by me and I am sure many of our readers.

@GP

The behaviour of the Banks in recent years has been well documented and in many cases well below the standards expected of the profession. The FCA Review process came about as a result of the numerous breaches of conduct and acceptable practice by the Banks. The FCA review into the mis-selling of interest rate hedging products, such as swaps, caps and collars, places the Banks under a positive obligation to provide evidence and documentation and to actively compensate the affected persons. We are comfortable that continued political and regulatory pressure on the Banks will keep the process open to inspection.

We are actively engaging with the Banks and with the FCA to ensure that the Review remains open and transparent, for example confidentiality clauses which are so often part of negotiated claims under litigation are likely to not be allowed under the Review. Where relevant we also engage our clients in standstill agreements with the Banks to protect their statutory limitation period and therefore protect their rights to litigate should they not be happy with the Review process.

Is that any help?

@Neil

Interest rate hedging products, in the form of caps, floors, collars and swaps to name but a few, have been sold by Banks to a number of clients on the basis that they would provide certainty over the interest rate to be paid in respect of an underlying loan. In very simplistic terms they work as follows:

Swaps are where the Bank will swap the floating rate of interest the client pays under the loan with a separate fixed rate. They were sold to the client as a way of fixing the interest rate payable rather than being subject to the risk of a variable interest rate. A number of companies were moved over to fixed rates in the region of 5-6% and then when the market rates decreased to 0.5% the company was still paying interest at the higher fixed rate.

Caps and Floors have been sold, respectively, as maximum and minimum interest rates payable by the client. With a Cap, if the interest rate goes above the cap rate then the client will only pay interest at the agreed cap. The client can therefore benefit from reductions in interest and will not be punished by increasing rates above the cap rate. The client will pay a premium for this product. With a floor, if the interest rate goes below the floor rate then the client will pay interest at the floor rate. The client will therefore not benefit from reductions in interest rates below the floor and runs the risk of increasing interest rates. A Cap and floor together is called a Collar.

The reason a lot of people have been financially damaged by these products are that they are separate agreements to the loan itself. So if the loan is repaid early then interest under the interest rate hedging product is still payable for the term of the agreement. For example a client may have taken out a £5m loan with a £5m hedge, both for 10 years. If the loan was repaid after 6 years the client would still need to make interest payments for another 4 years. Banks have tied clients into agreements for periods longer than the loan period, as per above.

They have also charged interest on sums larger than the loan amount. If the above £5m loan was being repaid so after 3 years the loan itself was only £2m, the interest rate hedging product may still be at £5m. So the client is in fact paying interest on a £5m sum when the loan is now in fact £2m.

There are a number of complex issues as to why interest rate hedging products have been mis sold and a number of ways that they are financially affecting those who entered into them. I hope that the above goes some way to explain how complex these products can be and how wide ranging the impacts of these products has been.

does that help?