Rate Swaps, also known as derivative rate swaps, interest rate hedging or simply “protection from an increase in interest rates”.
Rate Swap products are highly complex, complicated, liquid financial instruments which have been offered by banks such as Barclays, HSBC, RBS and Natwest (see Which Banks?)
In and of themeselves, they are not a “dodgy” product and can and do have a specific purpose which is beneficial to certain requirements.
However, the fact is that many banks have mis-sold rate swap deals to small businesses without fully explaining the risks, consequences or costs. Many businesses have found themselves tied into a rate swap deal and are paying the costs of such finance even if they havent actually used the facility. Our clients have told us that they were never advised that a rate swap product was less than ideal if the Interest Rates dropped.
Of course, since 2009, central interest rates dropped to a historic low. Unfortunately, for those customers on Rate Swap deals, they found paying very high rates and unable to afford the significant exit/termination fees found in interest rate swap products.
Effectively, a rate swap product is usually sold as protection from rising interest rates. Essentially, the client agrees to an interest rate with their bank. If interest rates then go up, the bank pays the difference. However, if they go down, it’s the client who pays.
However, many of our clients affected by rate swap misselling tell us that:
- Their banks failed to explain the major risks of interest rate swap products - to the extent that its usually unsuitable for most small businesses.
- They were tied in to the rate swap product with exit fees of up to 20% of the loan.
- Some banks made agreeing to a rate swap product a pre-condition of extending a existing loan.
Our specialist solicitors can help you get compensation if you have been mis-sold a derivative rate swap product by your bank.
Find out more about the options available if you have been mis-sold an interest rate swap and learn what your next steps should be.