Banks, integrity and relationships

Banks can provide “negligent advice” to customers without being held liable.

The outcome of a recent court case has effectively sent a message to banks that mis-selling of products is not illegal.

Crestsign Ltd, a small, family owned business, had challenged Natwest and RBS in court over alleged mis-selling.

The company refinanced its debts in 2008 for five years with a loan that provided for variable rate after two years. At the same time the banks recommended a 10-year interest rate swap that provided for a fixed rate of 5.65% for the ten years. When seeking to refinance again in 2011, the break costs were £600,000.

The banks denied that they owed a duty of care and claimed that any advice was limited to ensuring information given was ‘not misleading’

While the judge, Tim Kerr QC had expressed considerable reservations about the banks’ “negligent” behaviour relating to giving advice and recommendations on the swap product, in fact and in law the wording in the documents supplied to the customer exempted the banks from liability.

SMEs should beware.

Firstly, before agreeing to buy any product they should take independent advice.

Secondly, they should remember that the sale of products by a bank is likely to benefit the bank.

Thirdly, the small print is normally there to avoid liability by whoever drafts it.

And finally, relationship managers are very rarely decision makers.

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