Church 'hit by mis-selling of Scots bank'

Business Correspondent/Personal Finance Editor

Saturday 18 August 2012

A CHURCH is claiming more than £100,000 in damages from the Clydesdale Bank over claims it was unable to sell a property after allegedly being mis-sold a controversial interest-rate swap agreement (IRSA) on its loan.

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exclusive SIMON BAIN

Destiny Church Trust, which runs social action programmes in many of Scotland's poorest communities from its Glasgow base, claims it is owed the sum after the sale of a building it owns fell through because of prohibitive penalties attached to its agreement with the bank.

It is the first charity to complain of interest rate swap agreement (IRSA) mis-selling by Scottish banks, and follows revelations in The Herald about how the scandal has cost small businesses across the UK billions of pounds. Destiny had planned to sell the property for £280,000 in 2010 to save money on its loans, but said it was appalled when Clydesdale demanded £178,000 in penalties. The property has fallen in value during the housing slump and Destiny claims this has cost it more than £100,000.Andrew Owen, senior pastor and chairman of Destiny Church Trust, discovered as the sale was about to go through that an IRSA covered the whole of its £800,000 borrowings with the bank, that it lasted for 20 years, and that it could not be varied without paying the bank a penalty fee of £178,000. He said: "We had a buyer and it went to missives. We had intended to reduce our borrowings by £280,000, which was a massive amount for us as a charity, but they wanted £178,000 in penalties – we were shocked." Clydesdale was one of a raft of smaller banks which last month agreed to join an IRSA review process being supervised by the Financial Services Authority.IRSAs were typically sold before 2009 to businesses applying to their bank for a new property loan. Although looking like fixed-rate mortgages, they made big profits for the banks and carried huge penalties for early breakage by the borrower if interest rates fell, which was rarely explained to businesses.Mr Owen said the trust had been expanding its work in 2006 and asked the bank for a new £350,000 loan for two new properties in Shawlands, Glasgow. "They said 'why don't you do a complete refinancing of your existing mortgage?' We had no idea that the mortgage product we bought into was a hedging product. The bank had consistently failed to warn us of the massive or excessive breakage costs that could be liable."Clydesdale has taken more than two years to respond to Destiny's claims, Mr Owen said, and the delay alone had already cost the trust more than £100,000 in loss of value and additional charges on its property.He said the bank took nine months to respond initially to the trust's complaint.A letter to chief executive David Thorburn prompted a visit to the trust two months ago by two more senior directors, Mr Owen said, and the appearance of a 400-page file on their case. He said: "We still haven't seen any explanation of how they arrived at these breakage costs, or any evidence of a (derivative) agreement made by the bank with an outside third party."Clydesdale Bank said: "The bank has acted professionally and fairly with Destiny Church Trust (DCT) at all times, and refutes any suggestion that products, and their costs, were not fully explained. It has, over the last 12 months, put forward a number of proposals to support DCT and has provided copies of correspondence issued at the time the products were sold in 2006, as well as explanations of all of the calculations. "The bank has voluntarily agreed to conduct a review of the sale of interest-rate hedging products overviewed by an independent assessor appointed by the FSA."

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Church 'hit by mis-selling of Scots bank'

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