Small Firms Demand Bank Redress for Mis-sold Business Loans
QC Jonathan Fisher has ruled the Financial Conduct Authority (FCA) does not have the power to act on thousands of small business loans that contain interest-rate swaps. Banks have therefore seemingly dodged another compensation payout.
The compensation paid out since the FCA launched a review of interest-rate swaps sold alongside small business loans has totalled £1.8 billion. Compensation was given after businesses were left with significant bills following the plunging of interest rates in the wake of the 2008 recession.
Twice of many swaps were also “embedded” within loans and sold. The QC has told the Treasury Committee that the FCA was right to say it had no power to force a similar review of these products. He has also warned in his legal opinion, which was published by the Committee, that there is a gap in the law.
Martin Wheatley, the FCA Chief Executive, has since voiced his concerns that some banks may take advantage of the gap, which could result in selling “swaps” embedded into loans because they know they will most likely not face any legal consequences.
Andrew Tyrie, the Treasury Committee chairman, has announced members will consider whether to push a chance in the law, as the small and medium-sized businesses are essential to the UK’s economic health.
Mr Tyrie recently commented that small businesses “appear to have been hit by the complex terms of the loans proposed by their bank. Some have claimed that they were – by every ordinary understanding of the term – mis-sold the product. The decision is a blow to thousands of firms who feel they have been mis-sold these complex products. That is why, on behalf of the Treasury Committee, and with the help of an independent legal adviser, I have checked this out.
“The Committee will be considering whether more needs to be done to address the gap in regulation as part of its report on SME lending. It is crucial to the UK economy that this market be restored to working order.”
While the sale of loans to consumers is regulated by the FCA, the lending of small business loans is not. For example, if a person was mi-sold a car loan, he or she would be compensated; however, if a person was mis-sold a van for their small business, they would not receive any compensation.