Many people were forced to take out complex insurance backed products by the banks as a condition of commercial lending. In many cases it appears that the products were mis-sold. This area has spawned a good deal of jargon phrases such as “cap” and “collar” and “vanilla swop” but all the products are based on the idea that in a time of rising interest rate the insurance taken out by the borrower will pay the borrower a sufficient sum to cover additional interest charges on a loan over an agreed interest rate.

The problems that have occurred are as a result of the historic low levels of interest rate within the UK which has meant that the promised gains have not materialised, and in most cases, critically the exit costs from the arrangement are huge.

Early attempts to sue the banks were not received favourably by the courts and although the Supreme Court have yet to decide whether to grant leave to appeal in Rowley and Green v Royal Bank of Scotland 2013 EWCA Civ 1197; [2012] EWHC 3661 the current position does not encourage litigation except in clear cases.

This therefore leaves disgruntled borrowers with 2 possible avenues for redress:

  1.  The “redress “ scheme offered by the lenders following a pilot scheme that reported in  January of 2013 which revealed serious non-compliance in a significant number of  cases. As a result the banks agreed to carry out a more wide- ranging review of selling  since 2001. The scheme has now been operating for some months and at its heart is  the classification of customers as “sophisticated” or “unsophisticated” with only  unsophisticated borrowers being able to participate.

The Financial Conduct Authority suggest that 100% of “sophistication” assessments have now been completed, and for those within the scheme an independent review is offered.

Of those, 57% of complete reviews have taken place with a 96% rate of non-compliance found.

If an offer of redress is made it usually includes an offer to refund any payments made under the hedge together with simple interest. In some cases customers can also prove further allowable losses, but the criteria are strict and almost certainly less generous that would apply in an action for damages. The main benefit of the scheme is one of cost (it is free) unless a customer decided that they need their own advisers to assist.

Many of the banks ask for “fact find” interviews where customers are often faced with an attempt by the bank to emphasise points though to be favourable to the bank. Assistance at these interviews is often critical in order to draw to the reviewers attention any relevant issues.

2.    The Financial Services Ombudsman

As a separate remedy borrowers (subject to observing any relevant time limits) can complain to the Ombudsman. Again the scheme is free and decisions are regularly published on the FCA website. There are however restrictions in the overall sum that can be awarded and potential pitfalls in enforcement.

If you would like to discuss any of the matter in this note further please contact Simon Walker on 01264 721705