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‘Raw deal’ fears over bank mis-selling pay outs

Britain’s biggest banks face a May deadline to pay out some £4 billion set aside to compensate small firms mis-sold interest-rate protection products – and there are fears North West businesses may get a raw deal.

The Financial Conduct Authority (FCA) has ordered banks to speed up paying compensation to the 60,000 business it says were affected by the scandal, which first came to light in 2012.

The FCA wants the process completed by the end of May – and pressure to meet the deadline means that around 30,000 businesses have already received offers of redress, with a further 2,500 firms being contacted each week.

The products at the heart of the issue were meant to insure against the risk of higher interest rates, but when rates fell, businesses were left with bills typically running into tens of thousands of pounds or facing huge penalties to get out of the deals.

Bolton-based Seneca Banking Consultants, which is handling some of the UK’s largest claims, says banks are still using tactics to discourage firms from seeking fair redress.

Seneca director Daniel Fallows said: “Any compensation should put a business back in the position it would have been in had it never been mis-sold one of these products. What we see instead is banks offering settlements for direct losses – paying back the excessive interest that was charged under the swap.

“Many businesses do not appreciate that this is only half the battle. They may be entitled to a payout for ‘consequential losses’ –the losses which may have ensued as a result of the costs of the swap, and which can include professional fees, loss of opportunity, damaged supplier relationships, the business ending up in an insolvency process and so on.

“Consequential impacts such as loss of profits are more subjective and require an element of forensic accounting. But that’s what the process needs to address. These policies ruined scores of businesses and left many more in genuine financial distress, starved of cash, and with a poor credit rating.

“The regulator is aware of the problem but we are still seeing banks offering to pay an extra 8 per cent if customers forfeit the right to make a claim for consequential loss. So if a business was due to receive 100k compensation to cover its direct losses they will be offered 8k to write-off the rest of their claim.

“At best, the banks are adopting a one-size fits all approach. At worst, banks are once again gambling that businesses either don’t understand the reality of what’s being presented to them or are hoping firms can’t be bothered to pursue the redress they are due. Consequential losses can far exceed 8 per cent. This will catch many businesses out and this type of tactic on the bank’s part goes against the spirit of the whole FCA-imposed process.”

Seneca is writing to the FCA to demand that it does more to ensure banks explain decisions to reject claims. “Banks are able to reject a claim if, in the bank’s view, the sale was ‘compliant’ with little, if any, explanation as to why the sale was such,” added Daniel Fallows.

“Some businesses have received a single page reply from banks that says, in effect, ‘We found the sale of this product was compliant and therefore you don’t have a claim.’ There is nothing to substantiate how and why the bank reached that conclusion.

“By failing to provide that information the banks are denying businesses the natural justice of being able to formulate an appeal. They are trying to leave them with nothing to work with. In our view the FCA needs to demand more transparency from the banks around case resolution. Otherwise it is going to fall far short of fulfilling its duty to the victims of this banking scandal.”

The banks involved in the interest rate swap review include Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander, Clydesdale and Yorkshire Banks, Co-op Bank, Allied Irish Bank and Bank of Ireland.

This was posted in Bdaily's Members' News section by Simon Malia .