By Ed Monk and This Is Money Reporters
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Some of Britain's major banks will have to refund or pay compensation to potentially thousands of small businesses after regulators found 'serious failings' in the way they sold loan protection products.
In another blow that caps one of the worst ever periods for UK banks, the Financial Services Authority (FSA) confirmed today that Barclays, HSBC, Lloyds and Royal Bank of Scotland have agreed to compensate customers who were mis-sold interest rate swap arrangements (IRSAs) - complicated derivatives products sold alongside business loans to guard against rises in interest rates.
Banks sold around 28,000 interest rate protection products to customers since 2001, the FSA added.
Embroiled: Britain's banks are bracing themselves for a fresh misselling scandal
The new mis-selling controversy follows explosive revelations on Wednesday that Barclays staff rigged Libor interest rates, leading to £290milllion of fines. That scandal still threatens to envelop other institutions with fines for other major banks expected.
Meanwhile, NatWest, Royal Bank of Scotland and Ulsterbank are only now seeing the correct balance on their accounts after a huge IT meltdown caused havoc at the RBS-owned banks.
On the mis-selling of interest rates swap products, Martin Wheatley, managing director of the FSA's conduct business unit, said: 'For many small businesses this has been a difficult and distressing experience with many people's livelihoods affected.'
The claims echo the payment protection insurance (PPI) scandal that emerged last year, costing banks billions of pounds.
As well as offering redress directly for those customers that bought the most complex products, the banks have also agreed to stop marketing certain IRSA products to retail customers, the FSA said.
The City regulator has spent the last two months reviewing the sale of IRSAs, talking to more than 100 customer who came forward.
It found poor sales tactics including failing to provide sufficient information on the hefty exit costs involved, failure to gauge the customers' understanding of risk and found rewards and incentives were a driver of these practices.
The FSA added that not all businesses will be owed redress, but for those that are, the exact redress will vary from customer to customer. This exercise will be scrutinised by an independent reviewer at each bank appointed under the FSA's powers.
Mr Wheatley added that he had received personal reassurances from the bosses of the banks involved - including Bob Diamond at Barclays - that they will have responsibility for oversight of this work.
The British Bankers' Association, the leading trade association for the UK banking and financial services sector with more than 200 member banks, said: 'Our members have been working closely with the FSA while it carries out its thematic review into interest rate swaps and will continue to co-operate fully.'
In a statement, Lloyds, which set aside £3.6billion to cover the cost of PPI compensation, said it did not expect the costs of redressing customers who were mis-sold IRSA products to be 'material'.
It said: 'Interest rate derivative products are not products the group has sold widely. Given the limited exposure of the group to these products the financial impact of this remediation and the associated costs are not expected to be material to the group.'
A debate in the House of Commons last week saw MPs from across the country offer examples of mis-selling for the interest rate swap products.
Aberconwy MP Guto Bebb claimed thousands of businesses lost large amounts of money after being mis-sold the complex products by their banks, and many were told that without signing up they risked being refused credit.
He said many business people did not understand the deals but trusted their bank manager. In other cases, he said, businesses were offered only one product and the bank made no effort to provide a choice.
A survey by Bully Banks, which has been set up by alleged victims of swap mis-selling, found nearly three quarters of its members claim to have been forced to buy a swap by their lending bank as a condition of their loan.
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This has been going on for years, in the 80's there was the pension mis-selling from banks. We also saw some of the endownment starting to fail. Just think about Equitable Life it run into problems under the Troys, the final court case happen under Labour. The Torys were not finished with Equitable Life they said they would refund the lose to policy holders but only paid 25%. This is one reason pension saving is going down, the people at the top are taking without any results to savers today.
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@JOSEPH MUGGINS........Brown sold off all of our gold so that paper money would still look like a good investment. I had enough of the banks a while ago and emptied my accounts as i feel i have no right to complain about them if i keep my savings with them......Im over 50% in gold and silver now and continuing to buy on the dips, id rather take my chances with this than play a part in the banks causing total collapse of the economy.........If people watched money as debt on youtube they would soon empty their accounts and place their savings with an institution that doesnt use fractional reserve banking.....................They cant rob you blind if you dont give them the seed money to do so............
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We had a loan in 2009 to purchase our building from which we operate. (£391,000) As part of the loan being granted we were told we would have to buy a "Product" which would cost £15,600 to "Fix" our interest rate at MAX 5%. The term is 15 years and the rate is LIBOR +1.85%.The product fee had to be paid "UPFRONT". Is this one of the products under miss-selling. In addition "YORKSHIRE BANK" at this years review said unless we agreed to change the terms of the loan to a variable rate with a "Value to Loan" they would withdraw our other facilities (O/D,Bacs etc). I did not agree to change the loan and consequently they withdrew our facilities.We as a company have not used the O/D for the last couple of years so this did not cause us a problem. I have complained to YORKSHIRE BANK that their actions amount to BLACKMAIL, they seem to disagree. I employ some 20 people and their actions could have cost 20 people to be out of work had our situation not been s olid.
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And when they have finished with the bankers will they then start on the Insurance Industry and their sleight of hand light touch regulation. Particularly the Reattribution by AVIVA a couple of years ago and the approval by the FSA. The 0% annual bonus on policyholders investment for years since Norwich Union floated on the stock exchange. I suspect the compensation to policyholders would be near the PPI level scandal.
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Just came out of Nat West this morning, where three credits to my account have disappeared since Monday. So it is far from back to normal. Secondly I did note that every publication starts with " we can help" helpful banking" how can we help" the word help is in every single publication. Don't charge me any interest on my loan, that is help. Charging me 10% is business. Don't confuse the two. If I want help I will go to my mother.
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Everyone wants compensation and refuses to take responsibility for their own stupidity . These products are called Cap and Collars for a reason ... The "collar" makes it fairly clear that they can not do down as well as being capped
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A good decision. If we can get this sorted than small and medium sized business will be able to expand and invest their business and employ ore people instead of their cash flowing straight back into the bank. Only then will the British economy start to recover. Regulations have to implemented to prevent these fraudulent tactics being used in the future.
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If you rob someone- you go to jail. If you sell someone rotten meat- you have to refund it. Why are banking crimes not punished the same way? All these claims companies for this and that are making a profit off what the banks missold. Why didnt the government just tell them to refund everyone rather going through a conveluted process to get your own money back!
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I'd like to see the long term financial balance of the benefit of big banking to the UK economy - we get billinos in taxes fromt hem- great we spend billions of taxes keeping them afloat - bad - they hoard our money and dont bother to support small businesses, the core of our economy, very very bad. On balance, I dont think the UK economy will miss the banks as much as the banks would like us to think.
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RBS at it yet again. They seem to have a finger or thumb in every rotten pie!
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