Tips on Fixed Rate Business Loan Mis-selling Claims
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Many of you that run businesses may have been aware of ‘Swaps mis-selling’ over the past few years. Swaps are a form of interest rate hedging that protect against rises in interest rates for your loan repayments. In 2012, the Financial Services Authority (FSA) conducted a pilot study into the selling of these products and found that over 90% had been mis-sold. Some businesses that were sold Swaps would have participated in the Financial Conduct Authorities (FCA) Interest Rate Hedging Product Review Scheme, and the more lucky ones will have received compensation from your bank if mis-selling has been determined.
Rather than a Swap, your bank may have sold you a Fixed Rate Business Loan; especially if your business banking arrangement was with the Lloyds Banking Group or Clydesdale/Yorkshire Bank. These hedging products would not have been included in the FCA review scheme as they are deemed to be ‘unregulated’ loans. However, the economic effect of Fixed Rates are largely the same as Swaps – no benefit from falls in base rate / LIBOR and potentially significant termination (break costs) if you want to exit the loan early.
Despite the lack of a pro-active regulatory review into the sale of these products – which I suspect will never be forthcoming for now – many businesses are complaining to the bank themselves about these loans. If you are complaining, here are five things you should be aware of:
- Disclosure – Before you put pen to paper to complain, make sure you have asked your bank for disclosure. This means submitting a Subject Access Request (SAR) to your bank if the business is a sole proprietor or partnership, or a Request For Information if your business is anything else. By doing this, you should know exactly what product you are complaining about (type, amount, length, condition of lending etc) and why the Fixed Rate Loan was mis-sold.
- Time-barring. The bank will try everything they can to time-bar your claim, which means that the claim will not progress any further. You need to look at two things (1) the date the Fixed Rate Loan was sold and (2) the date that you either broke the loan or asked the bank for a break cost.
- Features benefits and risks – Try to find information in the disclosure relating to the features, benefits and risks of the Fixed Rate Loan. Was this information clearly provided to you and in good time?
- Low-ball offers of redress – If you do manage to get an offer of redress from your bank make sure that you are not getting ‘low-balled’. Look to see how the offer of redress is structured. Does the offer include an alternative hedging product such as a 5 years fixed rate loan? If so, this will dramatically reduce the amount of redress offered.
- And finally….check FOS eligibility – If you do get ‘low-balled’ by your bank, time-barred or the outcome of your complaint is “not mis-sold”, then check whether your business is eligible for the Financial Ombudsman Services (FOS) Scheme as there are business-size related eligibility criteria at the time of complaint. You will need to go to the FOS within 6 months of the date of your bank’s “Final Response Letter”. FOS is an independent body which looks at complaints, so by taking your complaint to the Ombudsman it may be that you get a more favourable outcome from the bank.For example, in our recent report, we calculated that there is a 54% chance of getting a better outcome from FOS for a mis-sold Tailored Business Loan complaint. To read our FOS report in full please click here.