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Bank mis-selling 'has damaged Scots SMEs'

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".

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