Customers eagerly awaiting compensation after interest rate swap mis-selling

Four of the UK’s leading banks have set aside funds for redress after mis selling interest rate swaps to their customers. The products were sold to customers running small to medium businesses, who were told that the contracts that they were signing into would protect them from rising interest rate swaps. The review was initially conducted by the Financial Services Authority, which since been replaced by the Financial Conduct Authority. A pilot study by the FSA led to estimates of 90% of customers that had signed up for the swaps being sold them unscrupulously. Some tactics that were allegedly used by the banks included the withholding of essential information that may have otherwise led to customers declining the offers, whilst some customers say they were told that they would only be able to receive a loan if they agreed to the swaps.

Hit by historic interest rate drops

Customers were told that if interest rates rose, they would be paid funds by the banks in order to offset the costs generated by higher rates. However, if rates fell, they would need to pay extra to the banks to offset the fall in rates. However, few guessed that interest rates would in fact drop to record lows as a result of the worldwide crash, leading to obvious results. Many customers running firms were then faced with crippling debts, and were also told that in order to opt out of the contracts they would need to pay as much as £500,000 as an exit fee. Customers affected by rate swap mis selling are encouraged to seek advice and help at

Costs set to spiral

The FSA made a strong distinction between ‘sophisticated’ and ‘unsophisticated’ customers, with ‘sophisticated’ customers likely to have understood the risks that they were taking. It said that may customers targeted by the banks were unlikely to have understood the complexities of the hedges that they were signing up for. Some of the underhand tactics that were allegedly used by the banks included failing to explain that the loans and swaps were two different products, not outlining the risks and refusing to offer alternative, more suitable products even when customers were eligible for them. The four leading UK banks have already set aside funds for compensating customers that were mis sold the products, though some experts have predicted that the costs that they are liable for paying out will come to eclipse the sums that have been outlined. 


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