Banks are dragging their feet to exploit the fact that breaches of contract are only actionable within a six-year time frame, writes Daniel Fallows of Seneca Banking Consultants.
The banks have been delaying, denying and stonewalling to run down the clock to prevent claims surrounding interest rate protection policies. We have written to the Financial Conduct Authority asking it to publicise how many settlements have been agreed by the banks and paid within the past 12 months. We believe the figure is derisory.
The UK regulator announced on 28 June 2012 that it had 'serious concerns' about the way these products were sold to business. Early estimates suggested at least 40,000 SMEs were affected by bank mis-selling. A subsequent pilot scheme revealed that in over 90% of 173 cases examined, mis-selling and breaches of acceptable practice had taken place. The FSA looked at a sample of cases from Barclays, HSBC, Lloyds and Royal Bank of Scotland.
It's now one year on from those serious concerns being raised at the FCA but many victims have been left with little scope to obtain redress.
Our open letter to FCA chief executive Martin Wheatley criticised the process of obtaining justice as slow, formulaic and lacking in transparency.
It's abundantly clear from the studies the regulator carried out that UK business was on the end of a lengthy epidemic of bank mis-selling. Yet the route to justice is still controlled by the banks. If you go through the FCA's compensation scheme, there are arbitrary limits governing who can seek compensation, restricting justice to businesses with a relatively modest turnover. And even on this path, it's not at all clear what a business could do if it didn't like the settlement it was offered by a bank. The time the whole process takes means the opportunity to resort to suing for breach of contract evaporates each day.
In addition those banks that sold these complex products in an even less transparent manner by embedding them within a term loan agreement continue to successfully convince the FCA that they should be excluded from the redress scheme. In our view this is another clear example of the scheme being weighted in the banks' favour; to the detriment of those businesses that have been mis-sold these products.
Seneca Banking Consultants is advising 170 businesses in the North West, Yorkshire and Midlands, operating across sectors that include property, construction, retail, hotel and leisure, and care homes. The firm is managing claims against £1 billion of debt.
Seneca has been asked to speak to members of the Treasury Select Committee and has also been contacted by a number of constituency MPs from around the UK.
The bulk of claims for mis-selling of interest rate protection policies, known as swaps, collars and caps, relate to loans taken out between 2005 and 2008. Marketed as a simple way of protecting against rises in the cost of borrowing, and often made conditional as part of a loan agreement, these products were in fact highly complex financial derivatives, with significant downsides. As interest rates fell they became financially disastrous, and have been blamed for a number of company failures.