Have you been mis-sold financial products?

CONCERN is growing that many businesses, mis-sold products by their banks, could lose out on compensation.

It was back in January this year when the Financial Conduct Authority (FCA) provided its findings of a pilot scheme which found that 90 per cent of deals sold to customers broke at least one banking rule.

Tens of thousands of interest rate hedging products have been sold to small businesses since 2001 and during summer last year, the FCA, which was the Financial Services Authority at the time, said that several banks were guilty of mis-selling and decided that compensation should be paid.

Banks were accused of forcing their business customers to enter into contracts with the sales pitch being they would protect the customer against interest rate increases. What the banks often failed to point out was that if interest rates decreased, which they have done dramatically especially during the 2008 financial crisis, the customer would be stuck paying artificially high-rates and very often, the customer was also left with very high early exit fees.

The FCA gave banks six months, or 12 months for larger banks, to complete their review of the sale of the relevant products.

Katherine, an associate solicitor at Mayo Wynne Baxter, said: “The overarching concern is that progress under the bank’s review seems to be slow and as a result many businesses are missing important deadlines to protect their rights to bring a claim.

The FSB however is concerned that their members are not taking advice and are missing their chances to obtain redress.

Katherine added: “The FCA’s findings from the pilot scheme were certainly a high-point for businesses with these products. It found that 90 per cent of the sales reviewed did not comply with one or more of the regulatory requirements.

“While it appears the review process is moving very slowly, we are now, at least, starting to see some settlements arising from this process and decisions being made by FCA adjudicators in response to complaints.”

The position for businesses looking for redress is starting to look better, but it is still important they ensure they have protected their position. The banks’ review process and court proceedings are entirely separate and even if a business has been told it’s in the review process, it will not hold up the time limits passing to bring court proceedings.

Katherine said: “It is important to try to keep the option of court proceedings available so that in the event that the business does not achieve redress under the current review process, there is another avenue to pursue. In addition, the threat of litigation can be a useful tool in negotiation.

“We appreciate that, despite encouraging signs, this remains a very tough economic climate. Many small businesses are not able to afford litigation or take the risks associated with it – particularly when they have been stuck on a high-interest rate. Often we are able to offer a funding arrangement that is similar to a no-win, no-fee agreement with insurance that protects against the risks of litigation.”

For more information, contact Katherine Leppard:http://www.mayowynnebaxter.co.uk/people/profile/katherine-leppard or partner, Karim Mohamed: http://www.mayowynnebaxter.co.uk/people/profile/karim-mohamed

If you want to contribute to the Chamber blog, contact us on hannah@brightonchamber.co.uk