Mis-sold Interest Rate Swaps
The Interest Rate Swap mis-selling scandal is often referred to as ‘The next PPI’, but the truth is, they’re different beasts altogether.
What Is An Interest Rate Swap?
An interest rate swap is a type of financial contract, where the two parties agree to switch flows of interest payments. For example, if you’re a small to medium business owner, you may have taken out an interest rate swap with a loan to protect yourself from rising interest rates.
What Was The Problem With Interest Rate Swaps?
The Bank of England lowered interest rates to record lows of 0.5%, in an effort to help businesses to borrow with confidence, and grow.
But this in turn meant that those who had bought an interest rate swap ended up being surprised by charges arising from the fact they had ‘switched’ payment streams, meaning that low interest rates became bad for a borrower.
Many small businesses (more than 90%, according to the FCA report) who have been sold an interest rate swap, could have been mis-sold it. Many small businesses were blissfully unaware of the charges that would have to be paid if interest rates fell rather than went up. When they were charged, many firms wanted to cancel the contract, but couldn’t without paying a charge, which was quite commonly a 6 or even 7 figure sum.
What Can I Do?
You may have been mis-sold an interest rate swap if:
- The product was not explained to you correctly, for example, you weren’t told about the risks or downsides of the product, only the benefits and the upsides
- The product was overly complex and not appropriate to your needs when they sold it to you
- The bank used inappropriate sales tactics – One man reported that they were being very persistent over the phone while he was driving, and they knew he was!