Mis-selling swaps and the struggle for compensation
It’s been a year since the banking regulator, the Financial Conduct Authority, sided with small businesses, saying 1,000s of them had been mis-sold interest rate swaps. It told the banks – RBS, Lloyds, Barclays, HSBC and others – to go through their books and compensate customers.
Yet incredibly, a year on, and not a single penny has been paid to anyone. Worse still, in some cases businesses are still having to pay their monthly swap fees. For many, it means cutting jobs or not hiring and no investment. Scaling back their business, just at the time the economy needs them the most.
I went to see one such small business today. David McEwan runs a packaging firm in Enfield, north London. He was sold the most toxic of swaps, called structured collars. His story is like so many others.
It was the boom of 2008 and he wanted to get a new loan to expand his business. He was told by his bank, Lloyds, that he could have the loan but it was contingent on buying a swap. A type of insurance in case interest rates rose.
It was protection, he was told.
He duly signed on the dotted line. But then rates fell and he ended up paying out more than £200,000 in swap fees.
In its ruling last year, the FCA said that complex swaps like Mr McEwan’s should automatically be cancelled and redress be given. To most people, the assumption was that any money paid out should be compensated in full. In other words, in Mr McEwan’s case, that he be refunded the £200,00 he paid to Lloyds over the years. To be put back into the same position he was in if the swap never had been sold to him.
Not the case. Believe it or not, Lloyds’ interpretation of the regulator’s ruling was entirely different.
Its offer for Mr McEwan is to give him another swap, a simpler one, and then to charge him what he would have paid on that simpler swap had he been sold it.
If this all sounds complicated and difficult to fathom it’s because it is. Mr McEwan didn’’t want the swap in the first place, let alone a second one in compensation for the first! And as for his financial compensation? Not £200,000 no, but £38,000.
Lloyds had this to say. “Whilst we will not comment on individual customers, the purpose of the review is to determine both who should receive redress and what form that redress should take.
“Fair and reasonable redress may be in a number of forms and may not solely involve a cash settlement and can also involve moving the customer to a simpler product if that meets the customer’s objectives at the time of trading.”
Mr McEwan says he was devastated. He’s lived in hope for the past year that things would go back to normal. That he would get his money back and forget the whole sorry episode. Alas, it’s not that simple.
Perhaps most astonishingly, the regulator told me today it was “happy the redress process was working the way it should be”.
Mr McEwan, and no doubt many others like him, feel otherwise. He says he’s not going to accept Lloyds’ offer and will fight until he’s got his money back in full.
If this case is anything to go by, something tells me we could be telling the same story this time next year.