Mis-selling scandal holding back recovery in economy

Yorkshire businessman Andy Green said the mis-selling of interest rate swap agreements (IRSAs)was acting as “one of the hidden brakes on economic recovery”.

Mr Green, who runs a media company in Wakefield, made the comments after attending a conference in Leeds organised by the Bully Banks, a campaigning group which represents small businesses who have been mis-sold IRSAs.

Some of these firms have gone bust because of the costs associated with the mis-selling, according to Bully Banks.

Jeremy Roe, the chairman of Bully Banks, which is a not-for-profit group, described IRSAs as toxic products that have caused havoc.

“People want their lives back,’’ he said. “And if possible they want to get their businesses back. There are hundreds of businesses in Yorkshire who were strong-armed into buying products they did not need or understand by the banks. It is the PPI (Payment Protection Insurance) mis-selling scandal in the business sector; it has cost jobs and contributed to many company failures.”

Around 100 businesses attended the event at the Hilton Hotel in Leeds, which provided advice for firms who had been victims of mis-selling, as well as guidance on legal support. The banking industry is facing another hefty compensation bill after a review of IRSAs sold to small businesses found that more than 90 per cent had been mis-sold.

The Financial Services Authority (FSA) said a significant proportion of the 173 cases were likely to result in redress being due to the customer. It is believed that as many as 40,000 of the interest rate swaps could have been mis-sold to small businesses since the end of 2001 after the FSA highlighted “serious failings” in the sale of the products last summer.

The FSA said the UK’s four big banks – Barclays, HSBC, Lloyds and RBS – have agreed to start work on reviewing individual sales and providing compensation. It is thought the cost of compensating businesses could total as much as £1.5bn across the sector. Interest rate swaps are complicated derivatives that might have been sold as protection – or to act as a hedge – against a rise in interest rates. In many cases, the customer did not fully grasp the downside risks.

They were marketed as low-cost protection against rising interest rates, often as a condition of a business loan. But businesses as small as bed and breakfasts and takeaway shops were left with major bills after the financial crisis caused interest rates to slide.

The FSA has also provided guidelines for banks to differentiate between sophisticated firms, who knew what they were buying, and small firms who did not understand the products.

The FSA has also been reviewing sales of interest rate swaps by Allied Irish Bank, Bank of Ireland, Clydesdale and Yorkshire banks, The Co-operative Bank, and Santander UK. It expects to confirm these banks can launch their own reviews later this month.

Bully Banks wants the banks to reach a “fair settlement” with the companies that were victims of mis-selling as soon as possible.

A British Bankers’ Association spokesman said yesterday: “We are pleased the FSA has reached agreement with the major banks to provide fair and reasonable redress for businesses affected. Since the problem was identified, the banks have all worked proactively with the regulator and independent experts so that the issue can be resolved as swiftly as possible.

“The FSA’s recent announcement gives clarity to businesses and is enabling the banks to put in place the steps needed to resolve each case for customers. Where customers have suffered unfairly, the banks have all agreed that they will put it right. Banks will be contacting those companies affected shortly, prioritising those with the greatest need.”