A DORSET law firm has formed a specialist banking department to handle more than 40 cases involving the mis-selling of interest rate hedge products.
Ellis Jones Solicitors is acting nationally for care home owners, caravan park operators, hoteliers, pub owners and property developers. Some of the cases are progressing to the High Court.
The mis-selling involves interest rate hedges, a complicated form of derivative sold to small and medium sized businesses (SME’s).
Often known as ‘interest rate protection’ they were sold by the UK’s biggest banks on the basis that they would act as a hedge or a form of protection against a rise in interest rates.
However, due to the complexities of the structured product, the customer often did not appreciate – or was not even aware – of the significant risk they were taking on.
Headed by solicitor William Fox Bregman, Ellis Jones’ specialist banking department is advising on cases where the client’s exit fee under the swap exceeds £700,000.
The exit fee can be triggered simply by the sale of the business and/or repaying the loan.
The worst examples involve business owners in their 60′s or 70′s who have been encouraged to take out complex forms of derivative exceeding 20 years. One client has to reach the age of 93 before being able to retire and sell the business without a breakage cost in excess of £400,000.
William said: “The highest volume of recorded sales was during 2006 and 2007, shortly before interest rates fell sharply.
“The structured products were often referred to as ‘sexy new products’ with, typically, only the benefits being emphasised. The substantial risks were regularly not even mentioned during the sales process or sufficiently dealt with in the paperwork,” he added.
An investigation by the Financial Services Authority (FSA) has found evidence of poor practices by four of the UK’s biggest banks.
The FSA has reached agreement with Barclays, HSBC, Lloyds, Royal Bank of Scotland/NatWest to provide ‘appropriate redress’ where mis-selling has occurred.
But the move, involving banks reviewing each case individually under the supervision of an independent adjudicator, has been criticised in some quarters.
William said: “One of our clients described it as ‘It’s like being mugged, then having the sentence handed back to the mugger to decide.
“By any standards, this is a huge scandal which we predict will dwarf the issues and costs surrounding Payment Protection Insurance which, in itself, is a massive problem.
“Ellis Jones has built a considerable expertise in the matter of cases involving the mis-selling of interest rate hedge products by banks. We have a significant case load involving clients across a wide geographical area with every indication that this will increase in coming months.”