June 29, 2012 - Kasia
The Financial Services Authority says that four major banks have mis-sold specialist insurance, known as interest rate swaps, to thousands of small businesses.
Since 2001, about 28,000 interest rate protection products have been sold to thousands of small firms. As interest rates have fallen, small firms have had to pay the banks money under the terms of the policy. The alternative option — cancelling the policy — carried very heavy penalties.
The FSA has announced that it has reached agreements with Barclays, HSBC, Lloyds and RBS over providing "redress".
Speaking on the BBC Radio 4 Today programme, the managing director of the FSA's conduct business unit, Martin Wheatley, described the policies as “complex products that people shouldn’t have had in the first place”.
The amount of compensation, he said, could be as much as £100,000 for a small firm that took out the policy alongside a loan.
The FSA said it believed the swaps have had a "severe impact on a large number of these businesses" and Martin Wheatley told the BBC that some firms had gone out of business as a result of taking out these policies.
The FSA found that banks were guilty of a range of poor practices including:
The FSA’s agreement with the banks means that small firms should be able to seek redress directly without having to pay a lawyer or a claims management company.