BAD VALUE COMMERCIAL LOANS: 1. SWAPS

In the course of the years five years we have been active in investigating various interest rate hedging products “Swaps” which the banks sold to business borrowers. The FCA (Financial Conduct Authority) ruled that these were regulated products and accepted that large numbers of them had been mis sold. All banks were required to review sales of these products and many borrowers have now been compensated, if your case wasn’t investigated let us know and we’ll consider your options.

BAD VALUE COMMERCIAL LOANS: 2. FIXED INTEREST RATE LOANS WITH BREAK-COSTS

Another type of commercial loan advanced to small businesses has received far less publicity but is just as dangerous as swaps: long-term loans with embedded swaps (a fixed interest rate). Bank sales staff made them seem very attractive suggesting to their clients that these loans offered security and certainty. Most business people in their fifties remember the times in the nineties when Bank of England (BOE) base rate was as high as 13-14% and borrowing rates were even higher, so the risk of future higher interest rates was something sales staff made much of when persuading clients to select a fixed rate loan. Customers would know exactly how much they had to pay the bank, they were told, which would help them with forward planning. Also if interest rates rose they would be protected from the rise in rates which might have created difficulties in servicing their loans.

There was of course a hidden catch. These fixed rate loans, set up for periods often of 10 years or longer, had heavy break-clauses which were arguably written in an unintelligible legal jargon. As a result if customers wanted to pay off their loans and take advantage of the lower interest rates that have prevailed from 2008 to the present day they could not do so without paying massive penalties of sometimes up to half the value of the sum originally borrowed. These break clauses potentially locked borrowers in to bad value loans for 10 years or more earning the banks vast profits. Well over 70,000 of these products have been sold to small and medium-sized businesses.

Lloyds Bank (and Bank of Scotland), RBS and Clydesdale/Yorkshire (which called them Tailored Business Loans) in particular marketed large numbers of these fixed rate ‘Treasury’ loans. Although they have not yet received much press coverage, at a meeting of the Treasury Select Committee they were widely criticised. CLAIMS has been able to obtain significant compensation offers for a number of small businesses. We have also been able to help the small businesses exit their agreements without the contractual break-clause penalties being applied.