Claire Collinson has been dealing with interest rate hedging product disputes since 2009 and has represented a wide variety of businesses and individuals with claims and complaints against all of the high street banks. These types of cases are currently receiving a significant amount of media and political attention, highlighting the appalling financial position these products have left many small businesses in.
Some of the situations I have come across include:
- A bank insisting on a swap continuing when the underlying loan was never entered into because the purchase transaction fell through;
- Swaps and collars being sold for double or triple the length of the underlying loan terms;
- Very small businesses being told that the proposed product was exactly the same as a fixed rate loan, with no explanation of risks;
- Long term products sold with “on demand” facilities;
Some of the issues potential complainants need to be aware of in pursuing a claim include:
- Limitation periods. Strict time limits apply to litigated cases and complaints taken to the FOS, which, if not met, can mean that there is a complete defence to the claim. In many cases this will be a 6 year period from the date the product was entered into. Therefore for products entered into in 2006 or earlier, legal advice is recommended on this issue as arrangements may be possible to prevent time expiring.
- Is the Financial Ombudsman Service a valid option? For smaller businesses and individuals, the Financial Ombudsman Service (FOS) is an option worth considering. It has advantages in that there is no risk of paying the bank’s legal costs in pursuing a complaint, an independent view can be obtained reasonably quickly, it demonstrates a willingness to consider Alternative Dispute Resolution and there is no obligation to accept any decision from the FOS at the end of the process. However, in very general terms the FOS has not been sympathetic towards complaints of this nature, and in some cases the adjudicators have lacked an understanding of the applicable FSA rules. In my view, the decision as to whether the FOS should be approached depends very much on the circumstances of the case: where, for example, there is a significant mis-match between the loan and hedge, or a clearly unsuitable transaction, then the FOS remains a valid option: cases have been successfully resolved via the FOS procedure and the FOS will review each case on its own merits.
- Litigation – changes to rules on funding protection. Most claimants would be ill-advised to commence litigation against a bank without some form of After the Event insurance in place, to protect against the risk of paying the bank’s costs if the claim does not succeed. At present, if the case is successful, the premium for that insurance can be recovered from the bank, along with most of the legal costs spent in pursuing the case. However, earlier this month the Legal Aid Sentencing and Punishment of Offenders Act received Royal Assent. This is due to be implemented in April 2013 and once in place will prevent the recovery of costs insurance premiums from a losing bank, meaning that such premiums would have to come from any compensation received from the bank. This ought to be of major concern to potential claimants in these cases as in circumstances where a large proportion of the resolution sought is often avoidance of a break cost rather than compensation, it could well be the case that once an insurance premium had been paid, the commercial viability of the cases, particularly for smaller amounts, could no longer be viable. This is an issue which needs careful consideration in deciding whether to and when to issue proceedings.
Claire Collinson can advise on hedging disputes, and can deal with cases which are appropriate either for the FOS or litigation.
