The Times’ reports that the Financial Conduct Authority is expected to say that between 5,500 and 6,000 businesses mis-sold interest rate caps will be allowed to join its redress scheme for interest rate swap mis-selling, in a move that could see UK banks facing £1bn in new compensation payouts. Royal Bank of Scotland could be hardest hit as experts say it sold more than a third of the caps with HSBC also potentially facing a large bill. Lloyds Banking Group and Barclays are understood to have smaller exposures. 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. The move has been questioned however, as the redress scheme has already been widely criticised for not delivering redress to businesses affected by swap mis-selling.
Source: The Times
We say…
As always with these things the devil is in the detail. We need to wait to see what the FCA says before anyone gets too excited. Mis-sold caps were included in the initial review agreement between the FCA and the banks as long as the customer proactively complained to the bank. This was on the basis, according to the FCA, that caps “are the least complex and are less likely to have caused consumer detriment”. This ignores the fact that caps can be expensive and have high break fees and were, in cases, mis-sold to unsophisticated customers who didn’t need them and didn’t understand them at a time when interest rates were falling.
But if someone was mis-sold a cap and has not yet been included in the review scheme why did they not previously complain to their bank so as to be included in the review scheme? Were these 6,000 businesses happy to continue paying expensive fees on caps they didn’t need to their banks? Or were they too scared to complain fearing their lenders would not renew their borrowing facilities when up for renewal? We sincerely hope the banks have done nothing to suggest the latter may be a concern.