The phrase ‘interest rate swaps’ is often used as shorthand for several products used by firms with outstanding bank loans to cut their exposure to rising interest rates.
Different types include swaps, collars and structured collars.
A customer who purchases a swap buys a contract that pays them money if interest rates go up from a fixed point. This will offset the higher costs on their loan. Conversely, if rates go down, they will be required to pay money to the bank, but that will be offset by the lower interest rate on their loan. The overall effect should be effectively to fix the interest rate for the customer.
However, it was never envisaged that interest rates would fall to the historic lows seen in the wake of the banking crisis, and this has caused buyers to face unexpected costs.
The other products causing most problems are structured collars. A collar, as its name suggests, is a product that limits the range within which the interest rate on a loan can move.
But structured collars add complex terms and conditions that can mean if rates fall to an extreme low as they did in 2008 and after, the customers actually face higher costs.
If you feel you have been mis-sold an IRS, we can tell you if you have grounds to make a claim.
The Financial Services Authority are investigating the banks and has set up a compensation scheme involving Barclays Lloyds, RBS and Natwest in respect of “non-sophisticated” businesses which are defined as meeting at least 2 of the following criteria:
- Turnover of no more than £6.5million
- Balance sheet total up to £3.26million
- No more than 50 employees
Under this scheme businesses that entered into “structured collars” are to be offered fair and reasonable damages. Businesses that entered into other types of swaps should have their complaints reviewed.
The Banks have been put in charge of the review process and therefore to achieve the best possible outcome, legal representation is essential.
If the FSA scheme does not provide a satisfactory outcome, businesses have the option to make an application to the Financial Service Ombudsman, however any redress through this process is limited to £150,000.
Failing this, Court action is also an option.
For ‘sophisticated’ customers there is no review scheme in place at present. The FSA feel that these customers would have the business acumen to understand the IRS scheme and the risks involved. This does not mean that you cannot make a claim. We can help you submit your claim directly to your lender and ultimately take the matter to Court if needs be.
If you need help in this area, call us on 0161 833 0044 and our specialist litigation solicitors will be able to assist you, alternatively email your details to firstname.lastname@example.org