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.
Tag: mis selling
Our regular followers will know that we have been keeping an eye on this issue for some time – here’s an update.
More than two years after a scheme was set up to help SMEs recover from bank mis-selling of Interest Rate Hedging Products a Bully Banks conference earlier this month has condemned the redress scheme.
Bully Banks was set up to support SMEs and to lobby for redress for their losses to restore them to the position they had been in before being sold IRHPs.
Many business owners at the conference reported that the scheme, administered by the FCA (Financial Conduct Authority) was failing to deliver. The FCA was described as “indifferent”, unaware and complicit in its handling of the banks under the scheme.
Bully Banks reported that “only 400 SME customers have had consequential loss agreed and those for a derisory £1,800 per customer”. They also reported that more than 35% of those seeking redress had been excluded on the grounds that “they should have been knowledgeable enough to see through the bank’s deceit” and that many thousands of SMEs have become insolvent as a result of the mis-selling. Cynics might argue that some insolvency procedures were initiated by the banks to avoid paying out or being pursued for mis-selling.
Given that plenty of politicians, economists and senior figures in finance were caught out by the onset of the 2008 financial crisis, in which mis-sold complex and incomprehensible financial products played a significant part, and are still struggling to make meaningful reforms to prevent a repeat it is a bit rich that 35% of SME owners are being penalised for a failure to understand the implications of some of those same products.