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Is this the new PPI scandal? Banks 'mis-sell' derivatives to businesses
A growing number of business owners are reportedly complaining that banks mis-sold them costly derivative contracts alongside their loans.
Banks have been accused of a new mis-selling scandal, involving persuading business customers to take out costly derivative contracts alongside commercial loans.
An investigation by the Sunday Telegraph has revealed that all the main UK banks, including Barclays (BARC.L), HSBC (HSBA.L) and the tax-payer backed Lloyds (LLOY.L) and RBS (RBS.L), face legal action over their sale of interest rate swaps to small and medium-sized businesses.
These complex derivatives contracts were meant to protect borrowers from an upward movement in interest rates on their loans. However, when rates plunged after the 2008 financial crisis they turned sour and ending up costing business owners substantial sums to unwind.
Claimants complain that the costs of the swaps were never explained to them. The issue has parallels with the mis-selling of payment protection insurance (PPI) to personal borrowers, which is costing the banks around £6 billion in compensation.
Paul Adcock, who runs an electrical retailer in Devon, told the paper he had been sold an ‘asymmetric leveraged collar’ by Barclays Capital, the bank’s investment arm, after he took out a £970,000 loan from the bank. His business incurred £180,000 in costs related to the swap, according to the Telegraph.
James Dean, managing director at Legal Plus in Bolton, which is handling claims on behalf of small firms, said he had seen a wide range of businesses affected. ‘They are not sharp suited companies. They are ordinary businesses.’
The paper also revealed details of two legal cases in Bristol and Edinburgh involving Barclays and RBS.
Both banks issued statements insisting they sold the derivatives contracts properly and provided sufficient information to customers.
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