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Friday 6 September 2013

We are seeing an increasing number of complaints being made against banks by customers who claim to have been mis-sold interest rate protection products, known as “Base Rate Swaps” or “Interest Rate Swaps”.

What is an Interest Rate Swap?

Interest Rate Swaps are Contracts that allow a customer to swap a variable interest rate loan facility for a fixed rate for a certain period. The products are commonly known as Swaps because the Bank and customer exchange or swap loan repayments. If interest rates rise, the Bank covers the increase in repayments for the customer. If rates fall, the customer pays the difference in the increased amount to the Bank. The upshot of this is that lower interest rates make the Swap much more expensive to service whilst higher interest rates result in a saving to the customer.

What’s the problem?

The record fall in interest rates has exposed many customers to the dangers inherent in such products with many now struggling to meet payments.  Many customers who entered into Swap Arrangements claim the risks of low interest rates and exit fees were never explained to them before they entered into the Swap.

What can be done?

The redress available will vary in each individual case, but the aim will be to put the customers back in the condition they would have been in had the breach of regulatory requirements not occurred. Potential redress would include cancelling the arrangements and refunding all payments or transferring the customer to a more suitable product. If a customer would have bought a different kind of product from the one recommended, they might be offered partial compensation depending on the losses they have suffered. However no compensation would be given if the customer would still have bought the same product anyway or the customer has suffered no loss. It may also be possible to claim consequential losses such as overdraft charges and additional borrowing costs, in the event that those losses were caused by the regulatory breach and were reasonably foreseeable at the time of that breach.

What should I do if I have been a victim of mis-selling?

Generally, customers have six years from the date of the sale of the product within which to pursue legal action against the Bank otherwise their claim will be statute barred and they will lose their right to pursue a claim through the Courts. Customers who purchased their Interest Rate Hedging products in 2007 will be approaching that deadline and it may even have passed.  In view of the strict time limits involved, urgent legal advice should be sought.