On the 21st of June, I joined fellow backbenchers in the House of Commons chamber to debate the issues surrounding the miss-selling of Interest Rate Swap Agreements (ISRA) to Small and Medium Sized businesses by high street banks.
Interest rate swap agreements were designed to reduce businesses vulnerability to interest rate fluctuations. However, they have been sold by high street banks such as NatWest, Lloyds TSB and RBS without fully explaining that they come with costly break clauses. The high level of these break costs have locked businesses into the deal which have been clearly detrimental to their business.
During the debate I highlighted how these agreements have affected several businesses in South Derbyshire, including a firm who entered into an interest swap agreement back in 2007, but when interest rates fell in 2009 he was told he couldn’t break the agreement unless he paid a break cost which totalled 19.4% of his original loan value. He was also informed that even if he sold his property to repay the loan in full, the IRSA would still exist as the interest rate swap agreement was a separate product to the loan he original received and that this agreement would last for ten years, even though the loan was for five years.
I also spoke about another Constituent who had also been pressured into buying an interest swap agreement by his bank NatWest. The Constituents bank manager admitted that he himself did not understand fully the swap agreements and sent two NatWest specialist advisors to speak to him. They told him that he would not be able to get a loan if he didn’t take out an IRSA, thus pressuring him to buying an IRSA. He has since found out that at the time there were only two companies in the UK who were qualified to give specialist advice on these agreements and that the advisors he spoke to were no more than highly incentivised ‘bank salesmen’ set on selling him an IRSA regardless of the ramifications for his business.
I welcomed this opportunity to get my constituents cases out there. It is clear that Interest Rate Swap Agreements have been miss-sold by three of our big high street banks, RBS, NatWest and Lloyds TSB. I asked the Minister to look more closely at how the Government can work to ensure that we support our small businesses and ensure that banks are not able to take advantage of them, by pressuring them into buying products that are unsuitable for them.
The Minister said that the Government are taking this matter very seriously and are working very productively, working directly with the Financial Services Authority (FSA) and that unlike many other alleged financial debacles in the past the review held by the FSA had not dragged on and would be reporting at the end of June.
I will look very closely at the conclusions of the report and will take whatever action needed to do then on behalf of constituents.
