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Homeless charity hit by 'mis-sold loans'

A charity working with the poor and homeless in Glasgow and Edinburgh claims mis-sold derivative-linked loans from Clydesdale Bank have so far cost it £400,000 and an ongoing £5500 a month.

COSTLY BATTLE: Members of Destiny Church at the Shawlands Campus in Glasgow. Picture: Martin Shields
COSTLY BATTLE: Members of Destiny Church at the Shawlands Campus in Glasgow. Picture: Martin Shields

Destiny Church says its financial crisis has deprived over 8,000 needy people of its support.

The charity's complaint, highlighted this week on the website of the NAB Customer Support Group, was first reported by The Herald in August 2012.

At that time Destiny Church Trust said it had been expanding its work in 2006 and asked the bank for a new £350,000 loan for two new properties in Shawlands.

The bank had proposed a complete refinancing of its existing mortgage, replacing it with a derivative-linked product, but "consistently failed to warn us of the massive or excessive breakage costs that could be liable", the trust alleged.

Derivative-linked loans featured:

l A linked or embedded market 'swap' or hedge.

l Protection against rising interest rates.

l A fixed-term loan of up to 20 years.

l Exit penalties linked to market value of the swap.

Destiny's loan, like most sold by the Clydesdale to SMEs, was a fixed rate product containing an embedded swap, putting it outside the current swap loan mis-selling review by the Financial Conduct Authority.

In 2010, when the charity needed to reduce its debt and dispose of a property, it discovered that the embedded swap covered the whole of its £800,000 borrowings, that it lasted for 20 years, and that it could not be varied without a break fee of £178,000.

The charity claims its total losses are now £400,000, made up of loss of value in investment property, legal fees, knock-on costs with other banks, staff time, loss of development opportunities, and interest payments for short-term gap funding.

It says the effect of the toxic loans on its finances is that its outgoings are "£5500 each month more than we should be paying".

Destiny says the financial squeeze on its work in Glasgow means "2000 people have gone hungry as our food banks have run dry", 150 people had faced homelessness as hardship funds ran out, and 2000 victims of drug abuse and other vulnerable people had not been helped due to curtailing of a 'Lifeline' programme.

Meanwhile, it says 2500 children were not supported due to youth programme staff cuts and 300 families had been deprived of help from professional counsellors.

Destiny's pastor Dan Owen said: "These figures may seem extreme but are based on what we currently do as a church and charity in the city and what we were intending to do."

The charity claimed in August 2012 that the bank had so far taken more than two years to respond, and in one meeting, "we saw two managers, who were very intimidating".

A letter to chief executive David Thorburn triggered new activity, in the form of visits from bank executives, but Destiny says it has had "no explanation of how they arrived at the breakage costs".

Clydesdale Bank says it has acted "professionally and fairly with DCT at all times", and refutes any suggestion that products, and their costs, were not fully explained.

It declined to comment on the claims made by Destiny on the action group website.

Mr Owen said: "Clydesdale originally promised to gives us a response before Christmas and then five weeks ago said that they were going to resolve the matter imminently."

A spokesman for Clydesdale Bank said: "We continue to have open discussions with Destiny Church with a view to reaching a mutually agreeable way forward."

Contextual targeting label: 
Finance

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