Following the recent announcement of headline settlement between the FSA and the major high street banks-Barclays, HSBC, Lloyds and RBS, there are going to be many businesses which are suffering financially because they had to enter interest rate swap schemes that are not now in their best interest.
Borrowers may not have fully understood or taken financial advice as to they where getting into at the time.
Other businesses may have been given no option other than to have entered the scheme at the time.
Most of these businesses are paying high interest rates that will make survival harder in times of low interest rates.
When a loan was taken out with a swap, the interest rate is in effect fixed at a certain level.
On reviewing the practice, the FSA found what it described as “serious failings” in many such agreements.
Swaps became popular before the 2008-2009 downturn in the economy as they where offered by the Banks as protection against a possible rise in interest rates. They took many forms such as swapping variable for fixed rates and capping rates, and included complex financial products common within the financial markets but not suited to the “real” economy.
This is the area of concern where Borrowers may have felt compelled to take a swap and told that if they did not they would not get the loan. It is felt that Banks may have failed in their duty to explain the concept of swapping rates properly. The rate of interest and the swap may simply have been imposed by the lender and a separate swap provider acting together, something tat the Borrower may not have realised. Most swaps where akin to modern “Casino Style” that Banks used instead of the face to face High Street transaction with someone the Borrowers knew and trusted.
This is a welcome development for many businesses and I feel that if you where involved in changing from variable to fixed rates on the advice of the Banks.