A rate swap mis-selling compensation scheme has been introduced by the Financial Services Authority (FSA) in an agreement with the four banks who recently admitted to mis-selling Interest Rate Swap Agreements (IRSA) to thousands of small and medium sized businesses.
Lloyds, Barclays, HSBC and the Royal Bank of Scotland have acknowledged that, between them, up to 28,000 policies were mis-sold to small and medium size businesses in the UK as an insurance against interest rates increasing on finance the businesses had taken out with the loan providers.
The FSA discovered that many of these policies were mis-sold due to customers not having the terms and conditions explained to them, not being advised that substantial exits costs were involved if the business wanted to withdraw from the agreement or that the rate swap agreements were sold as a condition of a loan being granted or extended.
In some cases of mis-selling, it was found that some IRSAs were for longer terms and higher amounts than the finance that was being provided and that clauses were written into contracts which allowed the banks to withdraw from the insurance policy if they suffered financially, but the same courtesy was not extended to the business.
The rate swap mis-selling compensation scheme will be funded by the banks, who have been told to conduct a “redress exercise and past business review” and contact any business that may be entitled to compensation for the mis-selling of an IRSA.
The total amount of compensation businesses may be entitled to claim because of the banks´ illegal practices could exceed 6 billion pounds, and banks have been instructed not to continue selling IRSAs or foreclose on affected businesses in anything other than “exceptional circumstances”.