Thousands of small firms could win share of £10billion over 'cruel' loan deals from banks

Financial Services Authority found banks guilty of 'serious failings'

Vast majority of the 'interest rate swap' loans mis-sold to small businesses

Reminiscent of Payment Protection Insurance scandal that cost £12billion

Tens of thousands of small firms ‘cruelly conned’ by banks into taking out rip-off loans could get more than £10billion in compensation, it emerged last night.
On another day of shame for Britain’s banking giants, the Financial Services Authority found them guilty of ‘serious failings’ over the sale of the complex ‘interest rate swap’ loans.
Many deals contained an expensive ‘break clause’, which meant they could not escape the loan without paying a fortune to the bank. This could exceed 40 per cent of the value of the original loan.

Scandal: Britain's biggest banks will potentially have to pay out billions to the victims of mis-sold interest rate swaps

Thousands of the loans were sold by the country’s four biggest banks – Lloyds Banking Group and Royal Bank of Scotland, both rescued by taxpayers, as well as Barclays and HSBC.
Yesterday Business Secretary Vince Cable said it is yet another ‘example of the little guy paying for the big banks’ wrongdoing.’

Greg Clark, Financial Secretary to the Treasury, said the victims had been ‘cruelly conned by the very people they trusted’, with many sold loans by banks where they had held accounts for more than 40 years.
It is the latest in a long list of banking scandals, the most notorious of which has been the £12billion mis-selling of payment protection insurance.

THEY NEARLY RUINED ME: BUSINESSMAN SAYS HE WAS 'HOODWINKED'

Hendersons

Alan Henderson has run his firm in Putney, south-west London, for 40 years.
But it has been pushed close to the brink of collapse by a £1.75million loan which Mr Henderson, 73, feels he was ‘hoodwinked’ into taking out.
The company has two businesses – Henderson Signs and Henderson Builders. Mr Henderson’s wife Margaret, 73, does the accounts, their daughter, Jane, 47, is the secretary and their son Mark, 50, runs the building business.
Mr Henderson took out the loan with RBS in February 2008, and his first quarterly payment for around £22,000 was as expected.
Within months, the loan repayments had risen to £34,000. The loan repayment had dropped to £11,000 but there was an extra payment of £23,000 for the ‘swap’.
Furthermore, Mr Henderson would have to pay a ‘break cost’ of around £400,000 to get out of the loan. Mr Henderson said: ‘I do feel they hoodwinked me.’ 
They were told they had to continue paying the cost of the ‘swap’ for a further five years, even after the five-year loan ends because they had repaid it.
Fortunately, RBS has recently suspended the payments following the investigation by the FSA.

Criticism: The FSA claims that 90 per cent of the swaps were wrongly marketed to their buyers

SHAMEFUL HISTORY OF BANKING SCANDALS

Ever since the advent of the credit crunch and the financial crisis which has been blamed on banks' reckless lending policies, financial institutions have become wrapped up in a mounting succession of scandals.
May 2011: After a long-running regulatory battle over Payment Protection Insurance, the big banks admitted they had misled their customers into buying unnecessary coverage and agreed to set aside up to £13billion to pay compensation to those affected.
June 2012: Barclays was fined after its traders were found to have manipulated the Libor benchmark lending rate. The investigation was soon widened to take in a number of other banks.
August 2012: Standard Chartered was accused of breaking sanctions banning trading with Iran, by hiding $250billion worth of transactions involving the pariah state. The bank was fined $340million by regulators in New York.
November 2012: It emerged that HSBC had enabled criminals' money laundering by allowing them to set up offshore accounts in Jersey. The bank admitted its controls over laundering were too lax and was hit by another huge fine.

Yesterday the City regulator slammed the banks for ruthlessly taking advantage of small business owners, who were persuaded to take out loans they did not understand.
Many of the victims had no idea the terms contained a stealth clause meaning it would cost them a fortune if interest rates started to fall.
Some of them have gone bust. Others have been forced to make redundancies or ask staff to work for free, while others are having to raid their pension and savings to keep afloat.
The FSA said it believes at least 40,000 loans were taken out but does not know the exact number of small firms affected. Some may have taken out more than one loan.
Its initial investigation into 173 of the loans found ‘over 90 per cent did not comply with one or more of our regulatory requirements’.
The compensation bill will be  huge, with estimates ranging from  £1.5billion to more than £10billion.
The average compensation payout for PPI from the Financial Ombudsman Service is £2,750 but the scale of the compensation to small business owners will be far higher.
In total, the four big banks have set aside around £650million to pay compensation, but this is likely to be just the start of the final bill.
Matthew Fell, a director of the Confederation of British Industry, said: ‘Giving businesses prompt and proper redress will enable banks to then focus on lending to the real economy.’
Mr Cable added that the immediate priority is ‘to ensure small businesses are not driven out of business by banks pursuing liabilities for swaps that they mis-sold’.
The FSA said it found examples of the cost of the ‘break clause’ ‘exceeding 40 per cent of the value of the underlying loan’. Last year, when the scandal broke Tory MP Gary Streeter said: ‘I think it will become as big a scandal as PPI.’
Banks have been ordered to complete their reviews of their cases within six months, although those with large numbers of victims are allowed to take up to 12 months.
Jeremy Roe, of Bully Banks, described the announcement as ‘a Polo settlement’ because it has a hole in the middle – as it is unclear how much compensation will be paid.

FAMILY BUSINESS CRIPPLED BY COMPLEX LOAN REPAYMENTS

A century ago, Paul Adcock’s great-grandfather set up a shop in the high street of the Norfolk town of Watton.
Now, thanks to a complex loan deal sold by Barclays, the family business is struggling under a massive debt.
Speaking when the scandal came to light last June, Mr Adcock said he felt angry at the way the bank, which has been the firm’s ‘trusted adviser’ for 100 years, has treated him.
In 2006, he took out a loan for around £970,000 to make alterations to his electrical shop, but he was advised to take out a swap to protect himself against interest rate rises.
Mr Adcock, who has worked at the shop since he was 18, said that he had no idea what he was taking out when an adviser from Barclays Capital came to speak to him.
When faced with a barrage of questions from the adviser on his ‘predictions on the future movements of interest rates’, Mr Adcock simply said: ‘I am an electrical retailer. I sell televisions and washing machines.’
The consequences have been devastating. He estimates the swap has cost him around £185,000.
Each month, he is making payments of around £7,700 to Barclays, but most of the money – around £4,500 – goes on the swap. The exact payments vary each month.
Mr Adcock, whose brothers, Chris and Mark, also work for the business, says the extra financial burden has crippled his business.
He has had to make two redundancies from his small team of staff. His wife, Marion, 51, is retraining as a midwife to try to bring in another source of income.
The shop, Adcocks of Watton, cannot sell a wide range of products because they cannot afford to buy the stock, although his customers have been extremely sympathetic. He said that running a small independent retail store during a double-dip recession is obviously difficult, but Barclays has made the situation far, far worse.
‘Having to fight the economic climate was always going to be tough,' he said. ‘But going into the battle with no ammunition [because of the swap payments] is really sickening.’
A Barclays spokesman said the bank was working with Mr Adcock to minimise the damage to his firm.