Case Studies

SMEs in all shapes and sizes have been dramatically affected by this latest mis selling scandal.

It is currently estimated that around 40,000 small and medium businesses (SMEs) have been mis sold an interest rate swap arrangement. However there is speculation that this figure, in reality, could top 100,000 SMEs.

No way out

In 2005, a publican went to their lender for a mortgage to purchase the freehold on one of his three pubs.

At the time lenders were concerned about rising interest rates. He was therefore told he would have to take out an interest rate swap with the banks investment banking unit.

However when the economy entered into recession and the Bank of England base rate from slashed from 5.75% to 0.5%, he faced the full implication of the swap product. As his interest rate was fixed, he saw none of the benefit of the interest rate cut and, when he enquired about repaying the remaining loan early, he was confronted with a £173,000 exit fee.

The businessman may be entitled to redress as he claims the lender never properly explained the associated risks and financial implications of the product.

Little other option

In another case, the SME involved did foresee the potential risks associated with an interest rate swap but was forced into taking one anyway.

In this example, the businessman required a loan to build new homes to add to his existing care homes portfolio. Despite only wanting to swap just 75% of the loan, the bank insisted he had to hedge the full amount. Refusing to do so meant he would not receive the loan at all and, as he did not have a relationship with any other lender, he was left with little other choice but to agree to the lender’s terms.

This SME may be able to reclaim these charges as a result of adverse pressure by the lender.

This is just two examples of the types of cases being considered for interest rate swap mis selling and is by no means exhaustive. If you are a SME who took out an interest rate swap product which you did not understand, was not fully explained to you or was forced upon you, you may be entitled to redress and are encouraged to contact a specialist legal adviser, such as Goldsmith Williams, immediately.