By Rachel Rickard Straus
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Britain’s banks are set to become embroiled in a fresh scandal that one MP has warned could equal the £9billion payouts of the payment protection insurance debacle.
The Financial Services Authority (FSA) is expected to reveal tomorrow that it has found evidence that banks mis-sold complex loans to small firms.
The loans - so-called interest rate swap arrangements (IRSAs) - have landed some small businesses with spiralling bills, which could have cost them up to £100billion and £120billion.
Embroiled: Britain's banks are bracing themselves for a fresh misselling scandal
The City watchdog is expected to confirm that banks are writing to customers who have taken out one of these loans and that an independent assessor will look at the most complicated cases to decide whether compensation should be paid.
The claims echo the payment protection insurance (PPI) scandal that emerged last year, costing banks billions of pounds, and come in the week Barclays was fined £290million for manipulating interest rates.
MPs from across the country have expressed their concern about the mis-selling of these loan products, which were not fully understood by many of the firms that took them out.
Lord Thurso, the Lib Dem MP who sits on the Treasury Select Committee slammed the deals as ‘nearly immoral’,
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 only offered one product and the bank made no effort to provide a choice.
IRSAs are complicated derivative projects, which act as a kind of prote ction against rises in interest rates.
However, since interest rates fell to record lows in 2008 in the wake of the financial crisis, some companies have claimed the rising fees to service the IRSAs are so high that they have forced them out of business.
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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