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Clydesdale pays £250,000 to firm in loan mis-selling case

CLYDESDALE Bank has paid out £250,000 to a small Scottish business after the Financial Ombudsman Service rejected the bank's claim that it had not mis-sold a complex loan which fell outside the scope of the banking review.

CONCERN: Clydesdale borrowers first raised the alarm in July 2012.
CONCERN: Clydesdale borrowers first raised the alarm in July 2012.

The Herald understands that seven further SMEs with similar cases have received the backing of the FOS in provisional adjudications.

Clydesdale has always denied that its fixed-rate tailored business loans (TBLs) contain swaps or derivatives, or were ever mis-sold, though last month it raised compensation provisions for loans which did contain swaps as well as "certain TBLs" from £36 million to £128 million.

The bank was among the bigger sellers of the estimated 60,000 "hidden swap" loans which the Treasury Committee is currently investigating.

The Financial Conduct Authority has admitted that such loans can damage SMEs in much the same way as the 30,000 interest rate-hedging products which, it has found, were 92 per cent mis-sold and require payments of around £2 billion in redress.

But meanwhile those SMEs have to resort to the ombudsman or the courts. The Clydesdale's chief executive David Thorburn, who appears today before the Treasury Committee's inquiry into SME banking, said last month the bank had to "make sure that in everything you do with customers you are clear, straightforward to deal with and fair so they trust you more than people trust banks today".

The £250,000 payout relates to a Clydesdale customer who as recently as 2009 was persuaded to move two of their loans onto five and ten-year TBLs, whilst keeping one loan floating.

But in 2012 the bank said it was exiting all property lending and the floating loan would have to be repaid, forcing the business to find £320,000 and also to re-bank.

The owner, who requested anonymity, said: "We shopped around, and Bank of Scotland could not wait to get us as customers."

However repaying the £1.2million of TBLs triggered a break fee, which the business says it was never clearly warned of, amounting to £182,000.

The SME first complained to the ombudsman in March 2013.

Now it has received a provisional adjudication that the bank should have treated all the loans as three-year fixed rate, and must refund almost £250,000.

Clydesdale borrowers first began to raise the alarm in July 2012.

Then in February 2013 The Herald revealed that fixed-rate TBLs would be excluded from the regulator's bank-led review as they were classified as commercial loans.

Earlier this year MPs on the Treasury Committee called for the "hidden swap" loans to be brought within regulation.

In April a survey by campaign group Bully Banks, which has more than 2,000 members, found 97 per cent of businesses reporting an adverse impact from a hidden swap loan and 63 per cent saying the effects were "serious".

Half the loans in the sample were sold by the Clydesdale and Yorkshire banks and a quarter by Royal Bank of Scotland.

Clydesdale Bank says it always tries to maintain a constructive dialogue with its customers and investigates all complaints thoroughly with a view to reaching a fair and reasonable outcome.

On whether the bank accepts the FOS decisions, a spokesman said: "Every case is dealt with on its own merits.

"Under the FOS process both parties have the right to accept provisional decisions or request further investigations, in some instances it will be appropriate for either party to do that."

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