Banks on the hook over rip-off interest rate caps - We need a similar scheme for asset based finance fraud!

Thousands of small businesses will be told that they may have been mis-sold interest rate caps by their lenders, potentially putting the country’s largest banks on the hook for at least £1 billion in new compensation payouts.

The surprise move by the City watchdog could come as early as today.


Tracey McDermott has driven the change in the FCA’s policy

The Financial Conduct Authority is expected to say that between 5,500 and 6,000 businesses will be allowed to join its redress scheme for swap mis-selling, having been overcharged tens or even hundreds of thousands of pounds on ceilings to protect them against interest rate rises.

Royal Bank of Scotland could be hit hardest by the move, as industry insiders say that it sold more than third of the caps that could now be reviewed.

HSBC also could face a large bill, while Lloyds Banking Group and Barclays are understood to have smaller exposures.

The decision to review the claims will be ann-ounced alongside a decision from the FCA that it has set a deadline of March 31 for all claims to be submitted to its interest rate swap mis-selling compensation scheme. It is understood that the same deadline probably will apply to interest rate cap claims.

Representatives of the banks, all of which signed up in June 2012 to the regulator’s original interest rate hedging products redress scheme, are arguing over the wording of the letters that they will be required to send to affected customers.

Guto Bebb, chairman of the all-party parliamentary group on interest rate swap mis-selling, said that he was “bemused” by the change of approach, citing problems with the existing scheme.

“In effect, the FCA are instructing banks to offer them access to what we would consider to be a redress scheme that is not delivering,” he said.

The decision is understood to have been driven by Tracey McDermott, the former head of financial crime and enforcement at the FCA, who this month took over as director of supervision and authorisations after a reshuffle.

Pressure to allow businesses that had been sold caps access to the review had been growing as the few allowed into the scheme had shown almost identical mis-selling and conduct breaches as those found among the sale of swaps, which are more complex products.

More than 90 per cent of the interest rate hedging product sales reviewed found some instance of mis-selling, although not all victims have been entitled to the same compensation.

Banks have offered £1.5 billion in compensation, although campaigners have said that the process has been too slow and idiosyncratic, with complaints that redress packages have varied wildly between lenders.

More than 19,000 potential victims have been reviewed and only a few were businesses that were sold caps. Before today’s change, customers who had been sold a cap were eligible for compensation only if they had bought a more complex interest rate swap that ran concurrently it, or if they wrote to their lender and asked to be included.

Unlike swaps, which left victims with costs to break the deal and big premiums when interest rates were cut more than six years ago, cap mis-selling involved customers who paid large upfront fees that did not reflect the real cost of the product to their bank.

http://www.thetimes.co.uk/tto/business/industries/banking/article4337576.ece