The Financial Services Authority is investigating allegations that banks have mis-sold interest rate swaps to businesses.
The FSA has begun investigations into allegations that banks have mis-sold interest rate swaps (IRSAs) to businesses.
This news comes at a time when up to £10 billion has been paid back to customers as a result of mis-sold Payment Protection Insurance (PPI).
The swaps effectively fix interest rates for customers: The bank covers the cost of increased payments when interest rates rise whilst the customer pays the bank if interest rates fall. Many of these products were sold during 2006-2008 when interest rates fell dramatically to an all-time low, leaving many customers with higher loan repayments.
Similar to the mis-selling of PPI, banks may have placed too much pressure on employees to achieve high sales targets for the selling of swaps.
Jim Cunningham, Labour MP for Coventry South, claims businesses in his constituency are facing bankruptcy as a result of purchasing these swaps and subsequent low interest rates.
“They do not have the resources to litigate against the banks. What is needed is for banks to come clean and release details of the number of business affected by the mis-selling of IRSAs,” says Mr Cunningham.
Ed Mayo, Former Chief Executive of the National Consumer Council, and Ian Murray, Shadow Consumer Affairs Minister, are to lead the investigation which will support calls for changes to the Financial Services Bill, seeking to make it simpler for smaller businesses to bring collective actions against lenders.
“The full scale of the problem has yet to be revealed, but it is clear that thousands of businesses have been affected,” said Mr Murray.