It’s a familiar, sad story: a large organisation considers itself above both the law and common decency, and so exploits smaller businesses – confident that its sheer size and power will allow it to act with impunity. In theory, we could be discussing negligence, IP theft, or any number of legal disputes – but as the latest in a long line of abuses from the banks, the recent controversy over missold interest-rate hedging products (IRHPs) stands out as especially egregious.
But what is misselling, exactly?
When a bank knowingly sells a customer unsuitable products – or gives them bad advice that leads to them buying said products – it has engaged in financial misselling. Many of you will experience a kind of Pavlovian revulsion at seeing the letters ‘PPI’: automated ‘PPI calls’ are one of the great annoyances of modern life in the UK. But it’s easy to forget that these irritations originated in a major scandal: the banks had to pay over £22 billion to consumers who had been missold payment protection insurance.
What is IRHP misselling?
Unfortunately, the recent furore over missold interest-rate hedging products (IRHP) – which look set to match PPI claims – demonstrates that we are quite far from seeing the end of this financial rabbit hole.
Since 2001, banks have sold SME customers complex rate swap products that were meant to safeguard their debts and protect the business. However, these products only provided protection to the Banks at disastrous cost to small businesses when, ironically, interest rates were being reduced to their lowest historical levels.
The effects have been disastrous, as the case of Jon Welsby, a respected Yorkshire businessman, demonstrates. In 2008, with property holdings valued at £8.5 million, Jon was in rude financial health – until he took out a £6 million loan with Lloyds, which mandated a £4million swap. When interest rates plummeted, his monthly payments (which he had always made diligently) skyrocketed; he had been hoodwinked into buying a product that would eventually devastate his company. The bank, true to form, refused to consider restructuring the swap.
The worst part? Lloyds is far from the only culprit: RBS, Barclays, Clydesdale, the Co-operative, HSBC, and others have all been implicated.
What are your options if you’ve been missold an IRHP product?
It’s unfortunate and unfair, but most of the time, the banks get away scot-free. Sometimes it’s due to flexing their financial power and political influence – as the 2009 ruling on overdraft charges shows – but in most cases, simple intimidation and psychological warfare does the trick. If you’re an SME owner going up against an opponent with vast resources, it’s easy to think there’s no way you can win: knowing they’re in the wrong, they instead rely on the fact that entrepreneurs feel obliged to back down from a legal war of attrition.
The good news is that it doesn’t have to be this way. SMEs seeking redress have already made considerable headway: the Financial Conduct Authority is overseeing the compensation process and has established new rules for selling financial products, and individual SME claimants have already found some degree of success. Bill Haslam, who became a director of Bully Banks after being missold an interest-rate swap product by Barclays, received a £1.5 million settlement in 2013.
That’s all well and good, of course, but what do you do when you can’t afford to pursue justice in the first place? Solicitors are not cheap, and with the recent, outrageous hike in court fees, it can seem like seeking redress will only add to your monetary woes.
Jon Welsby would disagree. After years of courageous, uphill battles, he has secured litigation funding from Annecto Legal – and finally has the arsenal he needs to take the fight to the banks. Jon Welsby comments, “Small businesses have been struggling with high legal fees for a long time. We operate on tight budgets and I certainly couldn’t take on the banks without funding support.” Liberated from his financial burden, he can now seek compensation without risking his remaining assets. If you’ve been missold a financial product, the same could well be true for you.
The banks want you to think you can’t win; they’re used to getting away with it, and they believe they will continue to do so in future. Prove them wrong.
Was your small business sold financial products it didn’t need? Talk to one of our experts today.