HAVE YOU BEEN SOLD A FIXED RATE BUSINESS LOAN?

A new bank mis-selling scandal is sweeping the Nation that has led to small businesses going bust. If you were sold a fixed-rate business loan in 2007 with the promise that it will protect you against interest rate changes you may be affected.

Most small businesses were told by the Banks at this time that these fixed-rate loans were there to protect them in case of rate rises, many being told it was effectively a "free cap".

The fact is, the Banks secretly added a swap which had the reverse effect. Unlike standalone interest rate hedging products (IRHPs), widely referred to as “SWAPS”, the Financial Conduct Authority (FCA) classes these “Embedded SWAPS” as unregulated.

The mis-selling scandal is basically as follows:

-          Banks had access to market data that the customer did not;

-          From 2007 market data forecast a big fall in long-term interest rates (they went to 0.5%);

-          Despite this, the Banks continued to sell fixed-rate loans priced at around 6%;

-          The derivative traders would receive the fixed rate of around 6% from the customer;

-          They have only been paying out at the true market rate of only 0.5% for the last five years;

-          The Banks have been pocketing the difference; and

-          In addition to that, the Banks received large commissions for introducing the deals.

The Treasury Select Committee is scrutinising the regulatory process of embedded swaps. Committee MP John Thurso said: "There is nothing wrong with selling a business a fixed-rate loan, however where the bank adds a hedge and fails to tell the customer I regard that, at best as mis-selling and at worst, immoral."

If you have taken out a fixed-rate loan by your bank in and around 2007, you should get in touch with us at GDP Partnership.

Darwin Allen AABRP

Senior Relationship Manager