BUSINESSES are being forced to sell assets so they can afford to continue paying for interest rate hedging products that were mis-sold by banks as they await compensation from the Financial Conduct Authority’s redress scheme, according to a campaigning Yorkshire lawyer.
Johanne Spittle, director at Lupton Fawcett Denison Till, said that several Yorkshire farms have had to sell land which has been in their family for generations to continue payments for mis-sold hedging products, such as swaps or collars, while they wait for the banks to assess their redress claims.
Other businesses, including many SMEs in Yorkshire and the North East, have had to take out further borrowing to continue payments, according to Ms Spittle.
Earlier this month, it was reported that Britain’s banks had so far paid out less than 10 per cent of the £3.75bn they have set aside to compensate small firms mis-sold interest rate hedging products.
The FCA said that £306m had been paid out by Britain’s biggest four banks – Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC – by the end of January.
At the time, the FCA said that redress was “rapidly flowing to small businesses”.
But Jeremy Roes, chairman of Bully Banks, the pressure group representing small businesses who were mis-sold complex products by the major banks, said the redress process was taking “an extraordinarily long time”.
The redress scheme was announced in June 2012 and the FCA said it ordered banks to begin paying compensation last May.
This month it said that all four banks were on track to complete the compensation process within a year of the scheme starting.
An FCA spokesman said: “Any business that is in financial difficulty, should contact its bank. Banks are continuing to prioritise customers in financial distress. What’s more, the vast majority of those who make the request have had their payments suspended pending the outcomes of their reviews.
“Until the final redress payment has been determined, the banks will not foreclose on or adversely vary any lending facility (without giving prior notice to the customer and obtaining their consent), except in exceptional circumstances.”
Ms Spittle said that a maximum of 25 per cent of her clients to whom the redress scheme applies have been assessed.
Ms Spittle said: “I have clients who submitted cases to the banks in April 2013 but have still not been assessed; those which have been assessed, and been paid ‘initial redress’ still await consideration of consequential loss claims where they have suffered other financial losses as a result of having the derivative payments deducted. This is not my idea of rapid.”
She said that while businesses await assessment, many still have to pay thousands of pounds a month under the swap or collar.
“The banks say that they will not suspend payments unless the customer is ‘financially distressed’ which means that they will stop taking payments only when the business has been brought to its knees.”
Consequential loss claims must meet strict criteria by the FCA. For example, claims for loss of profits will require customers to show that they would have used the funds in question to generate a profit.
Luke Patel, head of commercial dispute resolution at Blacks Solicitors in Leeds, said a number of its clients who were mis-sold interest rate hedging products by the banks have been offered a “provisional redress determination”, which is payable to them independently of any additional claims for consequential losses and costs.
He said: “The review process is certainly not moving as quickly as we and our clients would like and whilst this is causing even further financial strain on our clients, it is unlikely that the banks, even under the pressure of the FCA, are likely to settle the consequential claims in a timely manner to avoid setting any precedents, as this would be far too dangerous.
“These claims are often complex and require expert forensic assistance.
“We are confident from our dealings with these banks and their lawyers that our clients will receive fair compensation and our fear is that the claim for consequential losses is the area where there will be the most dispute and likely to be the litigated elements of these cases.”
Dominic Blakeley, an associate in Leeds law firm Clarion’s litigation team, said that there is another issue arising out of the banks’ “protracted” resolution process.
He said that when customers were initially contacted by their banks asking whether they wanted to participate in the FCA review, they were told that it had been set up in such a way that they did not need to seek legal advice
He said that now many who are still waiting for offer of redress or do not believe their offers are fair and reasonable seek to bring a court claim.
But he said: “We have to tell a number of people that unfortunately they have missed important deadlines which mean that any claim through the courts, often for large consequential losses, is time-barred.”