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Rate-swap firms urged to seek legal protection themselves

Small businesses who were mis-sold interest rate swap agreements (IRSA) should begin protective legal action against their bank immediately, and put no faith in the Financial Services Authority, the Bully Banks campaign group told a conference in Glasgow.

UNAWARE: Ken Graham, owner of Gambrino restaurant in Glasgow, signed up for an IRSA in 2008 after borrowing £1m from RBS. Picture: Colin Mearns

The group is launching a £150,000 fighting fund as it fears the review just under way, run by the banks, is designed to limit severely the customer redress on offer, despite the FSA having found mis-selling in 90% of IRSA sales in a pilot study.

Jeremy Roe, founder of Bully Banks which now has 1100 member firms, told Scottish SMEs yesterday: "We are still planning on the basis that the banks will continue to be unresponsive and intransigent, as that is what they have been over the past five to seven years, and on the basis that the regulator will let us down."

Urging SMEs to initiate legal actions, Mr Roe went on: "It's a disgrace and a scandal that seven months after the FSA came out with its first announcement [admitting mis-selling], we still don't know what redress means.

"It could mean that if you were sold a swap over 20 years they will say that is mis-selling, you should have been sold a swap over five years. I am scared that is what is going to come out of this."

Banks are understood to be defending claims by arguing that SMEs "probably would have bought an interest rate hedge" anyway.

Ken Graham, a Glasgow restaurateur, said his bank RBS had made it clear that his £1 million loan was dependent on him signing up for an IRSA in 2008, several months after he began to draw down the loan.

"It was so informal it was done by faxback. I was never aware there was a breakage fee."

Mr Roe said told the conference that the standard form of documentation used by banks was a "deceit" as it said no advice had been given when it had, while the risk of huge breakage fees made IRSAs "a product wholly unsuitable for small businesses".

Mr Roe said: "Most of us could have had our needs sorted with a 'cap', at a modest cost spread over the borrowing – but it produced no remuneration for the bank."

He said the profits made from IRSA sales were "obscene", adding: "The banks' conduct across the whole saga by and large has been quite appalling, any good coming out now is a very new leaf being turned."

The conference heard that in recent days RBS has granted 30 SMEs a suspension of their swap payments. The Herald reported on Monday that Guto Bebb MP, leader of the 73-strong all-party group on swaps, had criticised RBS over the issue.

But following a weekend report that said banks were to introduce a blanket suspension of payments, by order (to the FSA) of financial secretary Greg Clark, Bully Banks director Bill Haslam said: "The FSA have told us they have not changed their position – it has to be done on a case-by-case basis."

Several Scottish businesses also reported an easing of loan restrictions by the Clydesdale.

But Mr Roe said the exclusion of the most widely sold Clydesdale "embedded swap" loans from the review, because legally they fall outside the FSA's remit, was "a nonsense" and the group would lobby against it.

Richard Langton, of global litigation specialist Slater & Gordon, said only two IRSA cases had come to court, both being lost by the SMEs, because they had been "cherrypicked by the banks".

But there had been a large number where the banks had settled and attempted to impose confidentiality agreements.

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