JMW sees spike in interest rate swap enquiries

MORE than 25 businesses have contacted JMW Solicitors in the last two weeks having been adversely affected by interest rate swap agreements, according to the law firm. 

The banks have employed aggressive tactics that have resulted in customers effectively having no choice about whether to agree to an IRSA when borrowing from banks. It was frequently a non-negotiable condition of lending, stipulated by the bank. 

There are also a number of examples of the banks introducing the IRSA at the very last minute before completing the loan facility, as a “protective measure” to guard against potential rises in interest rates – a pressurised sale, JMW said.

All of the businesses that JMW have been in contact with have complained that the downsides to the IRSA (i.e. charges when interest rates fell and very high exit costs) were never explained to them. 

Last week, the FSA set out its proposals for the role of the independent reviewer who is to be appointed to oversee the redress process within each bank. But JMW said it has serious concerns that far too much power still rests with the banks when dealing with customers’ claims. 

Andrew Farrell, partner and head of litigation at JMW, said:“The FSA has allowed the banks to appoint their own independent reviewer and from the information we have seen to date, there appears to be very little scope for ensuring that the bank’s nomination is entirely impartial. 

“To put the FSA scheme into context, the bank will decide whether the customer is to be treated as an “unsophisticated customer”, the bank will then decide whether to review the IRSA, the bank will decide whether to offer any form of redress and the bank will decide the amount and form of any such redress, with such redress to be overseen by a bank appointed “independent” reviewer. The FSA has clearly found there to have been mis-selling on a large scale by the banks but we cannot see how this is a sufficiently robust response to ensure matters are put right.”

“The wider issue is that low interest rates have been set by the Bank of England in part to provide a low cost of borrowing for businesses and to encourage investment and growth.  IRSAs, for those businesses who have them, have entirely negated any benefit that may have been gained from low interest rates.”