THE mis-selling of complex hedging products to small businesses has had a damaging impact on jobs and companies in Scotland, a campaign group said yesterday.
Bully Banks, which has more than 1000 members, said SMEs were anxiously awaiting today's publication of a review by the Financial Services Authority (FSA) which will determine how banks will respond to mis-selling claims.
Jeremy Roe, chairman of the group, said: "There are hundreds of businesses in Scotland who were strong-armed into buying products they did not need or understand by banks.
"It is the PPI mis-selling scandal in the business sector and it has cost jobs and contributed to many company failures."
The banks are accused of failing to warn businesses of potential risks and exit costs of interest rate swap agreements (IRSAs), sold largely between 2004 and 2008 as an insurance against interest rate rises, mostly at the banks' instigation, and often as a condition of continued borrowing.
The FSA, faced with growing pressure to act over the com-plaints, announced at the end of June 2012 an initial survey had uncovered "serious failings" in the sale of IRSAs.
It announced a process of redress and review, but excluded so-called "sophisticated" customers, companies already driven into insolvency, and people with supposedly "simple" products – which so far includes most of the hedging products sold by Clydesdale Bank.
The banks appointed independent assessors from the big accountancy firms to supervise pilot studies, but the process has over-run by three months, and banks are already hinting it could take as long as a year to make customers an offer.
Meanwhile, a raft of legal actions are on standby, many of them to avoid a six-year legal time bar which affects around 50% of IRSA sales.
Simon Gracechurch, an adviser to the QA Legal group of lawyers in England and Scotland, said: "Our understanding is that different banks have a different approach and differing ideas of what review means, and how any redress should be calculated.
"Anecdotal evidence so far of what SME owners might receive has been sparse, and not at all encouraging."
He added: "Some banks are doing some deals and making some settlements behind the scenes with some customers, but only when they recognise a strong case, fully supported, insured, well argued, by a legal team with experience in this specialist field, and where they see the customer has the determination, wherewithal and backing to go all the way."
Bully Banks members' average business turnover was £1.7 mil-lion, and the average value of both the loan and the IRSA was £1.9m, at 50% loan to value.
The average cost of breaking the arrangement before the end of its term is £360,000, or almost 20% of the loan.
One borrower in 10 was sold an IRSA lasting longer than the loan term.
On a weekend television report that bank chiefs were putting pressure on the FSA to water down the review, Bully Banks said banks were "still focused on protecting their share price rather than acting responsibly".
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article