An issue that hasn’t had as much publicity as it should is the mis-selling of loans to small businesses.
The loans in question were mainly sold between 2006 and 2008, and known as Interest Rate Swaps or Interest Rate Hedging Products (IRHPs). They were marketed as insurance against rising interest rates, but banks failed to warn business people of the risks and possible huge costs involved both in servicing them and exiting from them early if interest rates fell. Unfair and unethical sales practices were common. In January 2013 the Financial Services Authority found that over 90% of sales from a sample study of cases breached their regulations.
What’s worrying is that the FSA’s investigation resulted in a Financial Conduct Authority review, but the speed at which this review is rolling out is concerning. Ten months on, only 32 businesses out of over 30,000 across the UK have received any redress. A large number of small businesses in Ceredigion continue to suffer financial distress while they wait for the outcome of the review into their case.
Also large numbers of affected businesses are excluded from this review, either because they are deemed to be financially ‘sophisticated’ because they fall outside arbitrary limits of turnover, assets and employee numbers, or because they have a fixed rate loan with a hidden IRHP, a product which the FCA claim they don’t regulate.
At the beginning of this month I had the chance to host a meeting of over 50 businesses from all over Wales, including several from Ceredigion, at the National Assembly, to raise awareness of how small businesses have been mis-sold these loans. I held the meeting in conjunction with the ‘Bully Banks’ campaigning organization in order to raise awareness of the numbers of business affected in Wales, and to help press for a more rapid resolution of claims for compensation against the banks concerned. We also had a chance to make our case directly to the Business Minister.
After that meeting, the Assembly passed a motion unanimously in support of the affected businesspeople, and just this week I’ve had an update from the Minister on how she is taking up the issue with the banks, the regulators and her counterparts in Westminster, Edinburgh and Belfast.
There are so many heart-breaking stories of local business which should be thriving, but which are crippled by the interest and penalty clauses on these loans, and in many cases these are clauses they weren’t made aware of. In Ceredigion, there are farmers, businesses in the tourism sector such as hotels and restaurants, property developers, and care homes who are very badly affected. It’s having a real impact on our economy.
For anyone who has been affected by this scandal, the Bully Banks organisation can be contacted here: